Systematic Investment Plans (SIPs) are marketed as the most disciplined, liquid way for small investors to build wealth. Investors are told: “Start anytime, stop anytime, redeem anytime.” Liquidity and transparency are supposed to be the hallmarks.
Yet when investors actually try to withdraw their SIP money, many face delays, technical barriers, or confusing settlement timelines. Behind these delays lies a less-discussed but powerful practice: the float money game.
Float refers to the temporary use of investor funds by banks, distributors, or Asset Management Companies (AMCs) during the period between redemption requests and actual payouts. This money, though belonging to investors, can generate interest or be used for short-term funding advantages.
For small savers waiting for liquidity during emergencies, these delays are frustrating. For institutions, they are highly profitable.
This article investigates how SIP withdrawal delays occur, why float money matters, and how this silent practice shapes the mutual fund ecosystem.
How SIP Withdrawals Are Supposed to Work
- Investor Places Redemption
Through AMC website, app, or distributor platform. - Cut-Off Timings Apply
Requests before cut-off (generally 3 PM IST) are processed at same-day NAV. Later requests are settled at next day’s NAV. - Settlement Timeline
- Equity funds: T+2 days.
- Debt/liquid funds: T+1 day.
- Instant redemption schemes: within minutes, but capped at small amounts.
In theory, the system is clean, transparent, and timely. In practice, delays creep in.
Where Withdrawal Delays Happen
1. Distributor Platforms
Third-party apps and bank channels sometimes batch redemption requests, adding a day’s lag before passing them to AMCs.
2. AMC Processing Delays
Some AMCs intentionally process at the slower end of timelines, even when faster settlement is possible.
3. Banking Channels
NEFT/RTGS delays mean funds are credited hours or days later, despite AMCs releasing them on time.
4. “Technical Glitches”
Apps and portals cite glitches or “system upgrades” to delay redemption credits, especially during high outflow periods.
5. Exit Load Confusion
Investors are sometimes nudged to switch rather than redeem, stretching timelines.
The Float Money Game
What Is Float Money?
Float is the money sitting with AMCs, banks, or intermediaries after redemption is initiated but before payout is completed.
Why It Matters
- A day’s float across billions of rupees can generate significant interest income.
- For large-scale AMCs, this “extra day” can mean crores in earnings.
How It Works
- Investor redeems SIP.
- AMC delays release (within allowed regulatory window).
- Funds sit in short-term money market instruments.
- AMC or banks pocket interest, investor earns nothing.
This game is largely invisible to retail investors, but highly profitable for institutions.
Case Studies
Case 1: Emergency Redemption Blocked
An investor needing urgent funds for hospitalization requested redemption from an equity fund. Despite T+2 rules, the AMC settled on T+4, citing “banking delays.” During those two days, crores in investor redemptions sat as float.
Case 2: Distributor Lag
A popular fintech app batched redemption requests, submitting them to AMCs a day later. Investors lost one full day of liquidity, while the platform earned float interest.
Case 3: Mass Redemption Panic
During the COVID crash (March 2020), many AMCs slowed redemptions citing “system overload.” In reality, the float was used for temporary liquidity management.
Why Float Persists
- Regulatory Gaps
SEBI allows T+1 or T+2, giving AMCs wiggle room. Few enforce the fastest option. - Low Investor Awareness
Retail investors don’t track settlement intricacies. - Systemic Incentives
AMCs, banks, and distributors all gain from float. - Operational Excuses
“Cut-off timings,” “bank holidays,” and “technical glitches” mask intentional delays. - Fragmented Channels
Multiple intermediaries mean no single party is accountable.
The Investor Impact
- Liquidity Crunch
Delays defeat the very purpose of SIP liquidity, especially in emergencies. - Loss of Returns
Investors earn nothing on redeemed funds during float periods. - Psychological Frustration
Investors feel cheated when their “anytime money” takes days to arrive. - Erosion of Trust
Repeated delays damage faith in SIPs and mutual funds as liquid products.
The Scale of Float Profits
- Assume ₹5,000 crore in daily redemptions.
- A 2-day float at 4% annualized earns ~₹1.1 crore in interest.
- Across a year, float interest could add hundreds of crores to institutions, invisible to investors.
For AMCs, float is not trivial — it is a silent revenue stream.
Global Parallels
- U.S. Mutual Funds: Settlement rules tightened after investors complained of float practices.
- UK Unit Trusts: Regulators cracked down on “slow redemptions” that unfairly enriched fund houses.
- Asian Markets: Float money has been used by banks to shore up short-term liquidity, often at investors’ expense.
The float game is a global issue, not just an Indian one.
Why Investors Rarely Protest
- Small Ticket Size
A day’s delay on ₹10,000 doesn’t feel significant. - Complexity
Few understand settlement timelines. - Resignation
Investors assume “that’s how the system works.” - Fragmented Responsibility
Hard to pin blame on AMC, distributor, or bank.
The Industry’s Defense
- “Settlement cycles are standard.”
- “Banking systems cause delays, not us.”
- “Float helps manage short-term liquidity for all investors.”
But these defenses ignore the ethical question: why should institutions profit from investor money after redemption has been requested?
Warning Signs for Investors
- AMC or distributor with a record of delayed payouts.
- Redemptions taking longer than SEBI-mandated cycles.
- Excuses like “system upgrade” during market volatility.
- Fintech apps batching redemption requests.
- Banks crediting funds days after AMC release.
What Regulators Should Do
- Mandate T+0 for All Liquid Funds
Immediate redemption up to a threshold should be universal. - Enforce T+1 Strictly for Equity Funds
Remove T+2 wiggle room unless technically unavoidable. - Ban Float Earnings
Interest from float periods should be credited back to investors. - Audit Redemption Practices
SEBI should audit delays during high outflow periods. - Penalties for Excuses
AMCs citing “glitches” without proof should face fines.
How Investors Can Protect Themselves
- Track Redemption Timelines
Note if your AMC consistently delays. - Use Direct AMC Portals
Avoid third-party platforms that batch requests. - Keep Emergency Funds Outside SIPs
Don’t rely solely on SIP redemptions for urgent cash. - Escalate Complaints
Raise issues with SEBI SCORES if timelines are violated. - Diversify Liquidity Options
Maintain a mix of liquid funds, FDs, and cash reserves.
Could Float Backfire on the Industry?
Yes. If retail investors widely realize that “instant liquidity” is often a marketing illusion, trust could collapse. Just as ULIPs lost credibility after mis-selling, SIPs risk reputational damage if withdrawal delays persist.
Conclusion
SIPs promise liquidity and transparency, but withdrawal delays expose a hidden game where institutions profit from investor float money.
For small savers, delays can mean missed medical payments or EMI stress. For AMCs, it means crores in effortless earnings.
The truth is uncomfortable: your money keeps working — just not for you. Until regulators enforce stricter settlement rules and transparency, SIP withdrawal delays will remain one of the industry’s least discussed but most profitable practices.
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