Systematic Investment Plans (SIPs) are built on a promise of transparency. Investors put in small amounts monthly, AMCs allot units at prevailing NAVs, and wealth grows steadily over time.
But buried deep in the mechanics is a practice few investors notice: the rounding of SIP units.
At first glance, this looks harmless — after all, fractions of units are difficult to display. But over millions of SIP transactions across years, the practice of rounding quietly benefits AMCs at the cost of investors.
This article explores how SIP unit rounding works, how AMCs tilt it in their favor, the cumulative impact on investors, and why regulators need to act.
How SIP Units Are Calculated
- Formula: Units = Investment Amount ÷ NAV (Net Asset Value).
- Example: If you invest ₹1,000 and NAV is ₹25.37, you should get 39.42 units.
Mutual fund systems must handle fractional units, but how they record, display, or round these units creates room for manipulation.
The Rounding Mechanism
1. Truncation vs Rounding
- Some AMCs truncate units to two decimal places (e.g., 39.42 becomes 39.42).
- Others round down fractions (e.g., 39.429 becomes 39.42, not 39.43).
2. Always in AMC’s Favor
Most systems avoid rounding up. Even if the math favors the investor, units are often truncated down.
3. Invisible Losses
Investors rarely notice losing 0.01 or 0.02 units — but multiplied across thousands of SIPs and millions of investors, this adds up.
Why AMCs Do This
- Operational Convenience
Truncating to two decimals simplifies record-keeping. - Regulatory Gaps
SEBI allows fractional units but does not enforce uniform rounding rules. - Silent Gain
The leftover micro-units accumulate as AMC-controlled balances, which can be monetized.
The Cumulative Investor Loss
Example Calculation
- Suppose rounding down costs an investor 0.02 units monthly.
- At NAV ₹25, that’s ₹0.50 per SIP.
- Over 20 years × 240 SIPs = ₹120 lost on one SIP.
Now scale this:
- 50 lakh investors × ₹120 = ₹60 crores silently absorbed by the AMC ecosystem.
Larger SIPs
For ₹20,000 SIPs, fractional losses per month are higher, and over decades can erode thousands per investor.
Tricks in Display vs Ledger
- Displayed Balance: Investor statements show rounded units.
- Ledger Balance: AMC systems may keep fractional leftovers uncredited to the investor.
- Corporate Action Gains: In dividends, mergers, or splits, those uncredited micro-units still benefit AMCs.
Case Studies
Case 1: The Equity SIP Investor
A Pune engineer noticed his SIP statement always rounded down units, even when third-party calculators showed slightly higher entitlement. After years, his total “missing” units were worth over ₹8,000.
Case 2: The Debt Fund Fraction Mystery
A Mumbai retiree saw his debt SIP units consistently truncate at two decimals. When NAVs rose, the missing fractions compounded into significant value.
Case 3: The Class Action Abroad
In the U.S., a lawsuit revealed mutual funds pocketed fractional unit differences over decades, eventually paying compensation. India could face similar backlash if investors unite.
Why Investors Don’t Notice
- Small Amounts
Fractions seem negligible per month. - Trust Bias
Investors assume AMCs act neutrally. - Statement Complexity
Unit statements are technical; few investors recalculate manually. - Focus on NAV, Not Units
Marketing stresses NAV growth, distracting from unit allocation accuracy.
The Industry’s Defense
- “Operational Norms”: AMCs argue two-decimal truncation is industry standard.
- “Negligible Impact”: They claim fractions are too small to matter.
- “System Limitations”: Legacy IT systems supposedly can’t handle infinite decimals.
But in the age of high-frequency trading and fractional share investing, these excuses look outdated.
The Real Problem: Scale and Intent
- A 0.01-unit loss may be trivial individually.
- But across millions of investors and years, the gain to AMCs is enormous.
- More importantly, the asymmetry (always in AMC’s favor) exposes intent.
Global Parallels
- U.S. Brokerage Rounding: Firms were fined for systematically rounding trades in their favor.
- UK Fund Houses: Regulators forced funds to credit investors with full fractions.
- Crypto Exchanges: “Dust” rounding controversies mirror the SIP unit debate.
The lesson: small fractions often hide big integrity issues.
Warning Signs for Investors
- SIP statements showing only two decimals for units.
- Units always rounded down, never up.
- Cumulative unit differences versus independent calculators.
- No clear disclosure of rounding policies in AMC documents.
- Dividend or bonus units allocated in neat integers only.
What Regulators Should Do
- Mandate Uniform Rounding Rules
Require AMCs to round to at least four decimals, always in investor’s favor. - Audit Micro-Unit Handling
Annual reports must disclose fractional unit accounting. - Refund Mechanism
Investors should receive credited micro-units or proportional cash equivalents. - Transparency in Statements
AMC statements must show exact pre- and post-rounding units.
How Investors Can Protect Themselves
- Use Independent Calculators
Cross-check unit allocations using NAVs and amounts. - Scrutinize Statements
Track unit balances over years for discrepancies. - Opt for Direct Plans
With fewer intermediaries, direct plans reduce rounding manipulation. - Raise Queries
File complaints with AMCs or SEBI if units consistently round down. - Join Investor Forums
Collective pressure can force AMCs to address micro-unit losses.
Could This Spark a Larger Scandal?
Yes. If exposed widely, rounding practices could resemble past financial mis-selling scandals. Individually small but collectively huge, the silent erosion of SIP wealth could invite lawsuits, media scrutiny, and regulatory crackdowns.
Conclusion
SIPs are built on discipline and transparency — but unit rounding practices reveal cracks in that trust. By always truncating in their favor, AMCs quietly skim investor wealth in fractions too small to protest, but large enough to matter at scale.
The issue is not the size of each loss, but the principle: when investors commit in good faith, AMCs must allocate in good faith.
Until regulators enforce transparency and AMCs credit every fraction fairly, SIP investors will remain exposed to this silent erosion of wealth.
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