One year ago, if you invested 1 RMB and 10,000 RMB respectively into a money market fund (where product data shows a past-year yield of 1.19%), how much would you have earned by now?

You might think this is just a simple elementary school math problem:

• 1 RMB Yield = 1 * 1.19% = 0.0119 RMB (Since the smallest unit of RMB is the fen, meaning up to two decimal places, the third decimal is rounded, resulting in 0.01 RMB).
• 10,000 RMB Yield = 10,000 * 1.19% = 119 RMB.

But the actual yield is: 0 RMB earned from the 1 RMB investment, and 119 RMB earned from the 10,000 RMB investment.

What if you only invested for a single day (assuming a 7-day annualized yield of 1.038% and a yield per 10,000 shares of 0.2804)? The answer is: 0 RMB earned from the 1 RMB investment, and 0.28 RMB earned from the 10,000 RMB investment.

Why is the yield on a 1 RMB money market fund always zero? Where did the yield that should have been there go?

I discovered this counterintuitive anomaly while researching money market funds recently. A 1.24 RMB money market fund investment I made a year ago still shows a yield of exactly zero. Meanwhile, another money market fund where I put over 200 RMB generates 0.01 RMB of yield every day. To figure out the root cause, I carefully read fund prospectuses, consulted fund management companies, and scrutinized the income distribution mechanisms of money market wealth management and fund products.

Almost every money market fund and wealth management product prospectus contains an “Income Distribution” section. However, most of them do not explain the exact mathematical formulas for distribution in detail, including how accounting rounding errors (tail fractions) are handled.

Before diving deeper, let’s go over some basic concepts.

1 Basic Knowledge

According to industry conventions, money market products maintain a constant Net Asset Value (NAV) of 1.00 RMB, with the smallest unit of fund shares being 0.01 shares.

For example, if you invest 200 RMB, your initial holdings are 200 shares. If your single-day earnings are 0.01 RMB, this yield is directly converted into 0.01 shares, bringing your final holdings to 200.01 shares.

2 Income Distribution Steps

1. Valuation and Reconciliation: The fund values, reconciles, and confirms its held assets daily. (The accounting valuation here is complex, so we will skip the details).
2. Calculation and Disclosure: Based on daily calculations of net asset earnings and total outstanding shares, the fund calculates the “yield per 10,000 shares” (万份收益). It also calculates and discloses the “7-day annualized yield” based on the trailing seven days of performance.
3. Daily Distribution: Income is distributed and paid daily, with the current day’s yield reinvested for compounding the next day. The daily allocation is calculated using the following formula: User Yield = Yield per 10,000 Shares * User's Daily Shares / 10000 Since the minimum unit of fund shares is 0.01, the calculated result of the above formula must undergo tail-end rounding (rounding error treatment) at the third decimal place. Common methods include: truncation (floor rounding) or rounding half-up.
4. Redistribution of Tail Fractions: The remaining undistributed balance generated by the rounding process is pooled back into the fund’s residual assets for redistribution. There are various redistribution models, but one of the most common is: sorting accounts from largest to smallest based on the third decimal place of their calculated daily yield (if the values are identical, sorting by account ID in ascending order) and allocating 0.01 RMB to each account until the residual assets are fully distributed.

3 The Siphoned Yield: How Small Accounts are “Vampired”

The vanishing yield of a 1 RMB money market fund is caused entirely by tail-end rounding errors (the discrepancies resulting from decimal rounding limits).

Given the yield per 10,000 shares (0.2804), the theoretical daily return on 1 RMB is merely 0.00002804 RMB. During the tail-end redistribution phase, because this number is so minuscule, the probability of this account ranking high enough to receive an allocated 0.01 RMB is virtually zero.

In other words, the tiny daily yield generated by your 1 RMB is systematically redirected to other accounts with larger fractional remainders. Because returns are calculated and distributed daily, these tiny yields are transferred away every single day, leaving zero opportunity to accumulate or benefit from compounding.

This explains why a 1 RMB money market fund yield remains zero indefinitely. Below, we will dive deeper into the design philosophy of these distribution rules. It gets a bit technical, so feel free to skip if you prefer.

4 Why Is It Designed This Way?

Since the minimum fund share unit is 0.01, the secondary redistribution must use 0.01 RMB as the basic unit to avoid introducing new rounding errors. (The residual assets represent the sum of decimals past the second place across all accounts. If distributed evenly, each account would receive far less than 0.01 RMB, creating another round of decimal errors and leading to a mathematical dead end.)

Of course, other redistribution rules could be designed:

• Sorting accounts by total holdings from largest to smallest;
• Sorting by subscription time from earliest to latest;
• Accumulating the residual assets to the next business day.

The exact sorting method depends on the fund issuer’s internal policy.

The fundamental design principle is a trade-off between technical efficiency and systemic fairness. While maintaining basic fairness, the rules tend to favor larger or earlier accounts. This design benefits large-scale holders at the expense of micro-holders.

4.1 Re-examining the Allocation Algorithm

From an accounting perspective, does the sum of all distributed assets perfectly equal the net asset value of the fund?

In reality, regardless of how decimals are handled, the sum of distributed assets rarely matches the actual net asset value exactly. The discrepancies arise from two factors:

1. Precision of the Yield per 10,000 Shares: The yield per 10,000 shares is typically rounded to 4 decimal places. The 5th decimal place is usually either truncated or rounded half-up. Truncation leads to accumulated undistributed assets, while rounding half-up can lead to over-allocation. The higher the decimal precision, the smaller the error.
2. Double-Calculation Precision Loss: Using the yield per 10,000 shares to compute individual user yields introduces a second round of division and decimal rounding, amplifying the precision error.

To minimize this discrepancy, some fund issuers maintain the yield per 10,000 shares to 10 decimal places in their database systems. For a fund with tens of billions in assets under management (AUM), this keeps the total error within single-digit cents.

A more precise approach would bypass the “yield per 10,000 shares” metric entirely and calculate individual yields directly: User Yield = User's Shares * Daily Net Earnings / Total Shares Outstanding This method requires only a single division, minimizing rounding-error propagation.

4.2 Would a Variable NAV (with Constant Shares) Solve This?

No. Even with a variable NAV structure, decimal rounding issues still arise when calculating individual returns. The root cause of the “siphoning effect” is the daily mandatory distribution and payout, which prevents micro-yields from accumulating locally in your account.

4.3 Do Other Types of Funds Face the Same Issue?

Other mutual funds (such as equity, bond, and hybrid funds) use a fixed share, variable NAV structure.

While they publish their NAV daily, they do not distribute income on a daily basis. Only at the time of subscription and redemption, will share settlement (subscription) and income settlement (Redemption) be carried out according to the net value, resulting in errors only at the “transactions”, so only two interception errors will be generated in the whole holding cycle.

In short, “precision processing only occurs during transactions.” These funds do not have the daily mandatory tail-end redistribution mechanism that drains micro-yields in money market funds.

Thus, if you hold 1 RMB in an equity or bond fund, even if your daily return is too small to display on the screen, it does not vanish. As long as the fund’s NAV grows, your yield continues to accumulate locally and will eventually be paid out when you redeem.

Now that you understand these distribution rules, are you already spotting a clever way to arbitrage the system? 😉

I went to the Hema NB (Super Value) store near my home today. Business was booming; I even had to queue to check out.

In my neighborhood, I have access to Hema, Dingdong Maicai, and Yonghui. Previously, I always ordered Hema Super Value items via the “Taobao Instant Shopping” (Taobao Shangou) interface because of the coupons. However, the delivery was incredibly slow, usually taking over an hour (likely due to a shortage of delivery riders in my area). In contrast, Dingdong Maicai delivers much faster (typically 30 to 60 minutes), but I found that Dingdong’s prices on the Taobao interface are surprisingly higher than on their own app.

Hema NB (Super Value) gives me the impression of a fresh food supermarket that has been stripped of live seafood. It feels like a watered-down version of the classic Hema, cutting out the signature live seafood and in-store cooking services. It seems to be a continuation of the “Hema NB Pickup” model (now that the self-pickup business has been taken offline). It is cheap and offers high cost-performance, though the quality of some items is just average. In terms of quality, I’d rank them: Hema Fresh (Xiansheng) > Dingdong > Hema NB.

What’s confusing is that for Hema NB, which is supposed to be a key developmental business for Hema, the main digital entry point is a WeChat Mini Program (there isn’t even an Alipay Mini Program). Furthermore, it has no relation to the main Hema App (though you can pay with Hema’s payment code and check orders), and it has an independent membership points system. You can place orders via Taobao Instant Shopping, but those orders don’t show up in the main Hema App. This means that customer service for Taobao orders can only be handled through Taobao—the systems are independent and not fully integrated.

I completely don’t get it. Why choose the Tencent (WeChat) ecosystem as the entry point for Hema NB while abandoning their own app? And why isn’t it fully integrated with Taobao Instant Shopping?

Also, regarding Alibaba’s e-commerce integration (renaming Ele.me to Taobao Instant Shopping and merging it into the E-commerce Group), why is Hema left outside to operate independently? Perhaps it’s due to the specific nature of the business—after all, it’s physical retail involving warehousing, logistics, brick-and-mortar stores, inventory, and procurement.

Hema, to me, can be described in one word: “Chaotic.” There are too many formats: Hema Fresh, Hema Mini, Hema Outlet, Hema X Member Store, Hema Market, Hema Neighborhood, Hema NB, Super Value NB, Hema Pick’n Go, Hema Cloud, etc. (There are so many, I can’t even remember them all. I just want to buy groceries; why create so many types?). They are constantly using trial and error, launching new businesses, and often contradicting themselves—taking the X Membership system offline then back online, shifting focus from online to offline, closing Hema Neighborhood/NB Pickup (because they couldn’t beat Pinduoduo’s Duoduo Maicai), and closing X Member Stores. A company like this, with such a fast pace of launching and failing, must place huge pressure on its employees (anyone who has worked in big tech probably understands this well).

The Hema X Membership is the worst value membership I have ever purchased. First, it’s expensive. At 258 RMB, compared to JD Plus at 99 RMB or Dingdong at 108 RMB, it’s truly pricey. Second, the benefits are mediocre. Aside from free delivery, the rest isn’t great. The membership doesn’t waive shopping bag fees, the number of items with “member pricing” is scarce, and the free vegetable perk was changed from “online or offline” to “offline only.” The X Membership is even split into Gold and Diamond versions. There was also the “Yi Shan” (Moving Mountain) price war, where shelf prices were cheaper than member prices. The system was taken offline and only relaunched in 2024.

Is it time to buy Alibaba stock?

I generally don’t use Taobao anymore. My first choice is JD.com (self-operated), and occasionally Pinduoduo. I used to buy from Tmall Supermarket, but I found their packaging consisted of one giant plastic bag with the Tmall logo, which caused the items inside to get crushed. I switched to JD Supermarket because they choose packaging (boxes or bags) based on how fragile the items are. As for delivery speed, in big cities, both offer next-day delivery, and JD can often do same-day delivery.

regarding the “Delivery War,” current market share is: Meituan > Taobao Instant Shopping > JD (according to a recent JP Morgan report). However, I think Meituan and Alibaba will be fighting neck-and-neck for a while. The classic internet strategy is “fatten the pig then kill it” (gain a dominant market share/monopoly, then raise prices). It remains to be seen if the market share bought with subsidies can be sustained once the subsidies stop.

According to financial reports, Meituan’s food delivery business lost 14.1 billion, while Alibaba’s delivery business loss figures are unknown, though the Cloud Intelligence Group saw revenue growth. Alibaba is betting everything on AI—AI Intelligent Cloud, the Qwen (Qianwen) Large Model, and applying AI across various businesses. However, as infrastructure spending on AI increases, the Return on Equity (ROE) of these investments remains to be seen.

Although I am not the one making the waves, I can ride the wind. In this ever-changing era, whether in consumption or investment, maintaining independent thinking is the most important thing.