People who deal in financial resources must have heard the word “Chit Fund” at least once in their lifetime. But what exactly are these “Chit Funds“? What’s the meaning and application of these in the financial market? Can people invest in them with profit in mind? Is chit-fund investment actually profitable or is it all some old wives tales?
So many questions, right? So today we will get your questions answered in this article.
What is Chit Fund?
Chit funds are a type of financial scheme that has been used in various parts of the world for centuries. They are essentially a form of saving and investment scheme in which a group of people come together to pool their resources, to provide each member of the group with access to credit or a lump sum of money when they need it.
To make it much more convenient for users the whole investment scheme set-up is digitally available with some of the best chit fund apps out there to use.
The basic concept of a chit fund is relatively simple. A group of individuals agrees to make regular contributions to a common fund, with each member contributing a fixed amount of money regularly. The total amount collected is then used to provide loans or pay dividends to members of the group, on a rotational basis.
How the money is distributed among the members of the group is usually determined by an auction process. For example, if the group consists of ten members and each member is contributing $100 per month, then the total amount collected each month would be $1,000. At the beginning of the month, the members would gather together and hold an auction to determine who would receive the money that month.
The member who bids the lowest amount would receive the total amount of $1,000, and the process would continue until each group member has received the total amount they are entitled to. The extensive calculations are also made easy for people by the use of several chit interest calculator software in the market. Now it’s quite easy to maintain the books for laymen too.
Benefits of Investing in Chit Funds?
One of the main advantages of a chit fund is that it allows individuals to save money in a relatively informal and flexible way. Unlike traditional savings accounts or investment schemes, chit funds are not subject to strict rules or regulations, and members of the group can often contribute as much or as little as they want, depending on their financial circumstances.
Another advantage of chit funds is that they can provide access to credit to individuals who might otherwise struggle to obtain loans from banks or other financial institutions. By pooling their resources, members of a chit fund can provide each other with interest-free loans, with the money being repaid over a fixed period.
However, there are also some potential risks associated with chit funds. One of the main risks is that they are not regulated by the government, which means that there is a higher risk of fraud or misuse of funds. There have been instances in the past where chit-fund operators have absconded with the funds, leaving members of the group with no recourse to recover their money.
Types of Chit funds
These schemes are regulated majorly by financial institutions, traders, money market investors, private financers, and money lenders. There are various types of Chit funds such as organized chit funds, registered and unregistered chit funds, special chit funds, and many more. However, people invest in these funds according to their personal preferences.
Organized Chit funds
It is a type of fund that is collected when the number of personnel comes together to secure a fixed amount of money. Then meets on a monthly or weekly basis to randomly draw out a name for the winner. In this slips are made with the names of the members and at every meet the selected name will be eliminated from the draw. But that person is liable to pay for the next draws even if he/she didn’t have their name on the slips.
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Registered Chit funds
These are the private chit funds operated under the guidance of the state governments with the regulations of the Chit Fund Act 1982 of RBI. These funds are registered by the Registrar of Chits. However, registered chit funds are reliable as well as recoverable. People mostly opt for these funds to be secure about their investments as they work under a legal framework and are less risky.
Unregistered Chit funds
It is a type of fund collected by people known to each other like friends, relatives, colleagues, etc. These funds are not regulated by the government and have a high level of risk involved in it. However, return is completely based on the trust and truthfulness of the personals. But despite being a risker process people do invest in such chit funds as the people involved here are familiar with each other.
Before investing in chit funds remember some general guidelines to secure your funds from fraud:
Things should be remembered before investing
● Check the organization you are investing with is registered with the Registrar of Chits or not.
● Do not forget to check their registration number and certificate to be assured of their legal presence.
● Ask for a copy of the registration certificate from the organization, to be assured that it is a registered firm.
● Be sure about the company’s reputation as well as its previous records, if they have any pending cases or fraud records.
● Make sure that you will get a paid receipt after every payment and keep a record so that you can claim your funds in case of loss.
● Ensure that you will able to pay your due dates regularly and be responsible for your investments.
● Do compare various chit funds before investing in a particular fund. So you should be able to make a wise decision by comparing their foreman’s commissions.
Applications (Apps) for user convenience.
As there are various kinds of chit funds in the market, with digitization all the companies have come online to provide convenient access to information for the users. With the rapid growth of the internet and technology in India and the huge rise in investment capital, conglomerates with lakhs of subscribers have designed various unique chit-fund mobile applications to assist users.
These apps assist users in many of their daily or occasional requirements such as management of chit-funds through chit fund management software and calculating interest earned and due for selected periods of time through chit-interest calculator apps.
Some of the must-know apps in the market for chit-fund users are as follows-
Sriram Chits e-payment, myPaisaa, Chitbook, The money club, Chitmonks, and many more are apps which are being actively used in the market as chit fund management software. There are
some beneficial apps for calculating chit-fund interest as well. Such as the Chit fund interest
calculator, Chits Calculator, Financial Calculator India and Chit savings calculator. These are useful chit-interest calculator apps that will help you immensely in the investment and calculation process.
Bottom line
In conclusion, Chit funds are a type of financial scheme that can provide a flexible and informal way for individuals to save money and access credit. However, they also come with certain risks and are not regulated by the government, which means that individuals should exercise caution when participating in a chit-fund. It is important to carefully research the operator and the terms of the chit fund before joining and to only participate in a scheme that is reputable and trustworthy.
