Chit Funds

What is Chit fund?

Chitt fund is a financial scheme/plan, which you pay some fixed amount monthly over a total set of period/month, and will receive the lump sum amount in one of these period/month.

The period will be equal to total number of chit members involved in the chit, if 10 members then it would be 10 months. 

Eg: If you pay 5000 rupees for each month over a total period of 10months, you will get 50,000 rupees in any one of these 10 months duration.

Why Chit fund? / When to involve in Chit fund?

Either as a short term savings tool or lend tool to get money all together in one single bunk for some investment/emergency purpose and pay the whole lend amount in small monthly decks.

When you are confident about your steady income, and would be in a good place to pay monthly fixed amount without hassle, good to jump in Chit, if you are preferring for less risk and satisfied with good returns 

Role/People of Chit fund:

1. Chit head/lead - the person who organise amount as well as the members of that particular chit.

2. Chit members - the set of peoples who involved in that Chit.

Types of Chit fund?

1.Random/Lucky draw Chit fund

2.Fixed Chit fund

How Chit fund works?

1.Random/Lucky draw Chit fund :

    Set of Chit members name are written in a small paper, folded and placed in a bowl, and picked one by one in random fashion, over the corresponding order/number in which the names come on, the month they will receive the lump sum amount.

Apart from these, the benefit for the Chit lead is that, he can call out for any of the month he requires the lump sum amount so his/her name will not be included in the bowl.

Here you will receive the same lump sum amount which is equal to the sum of monthly fixed amount you pay. No amount will be deducted or added. If you invest 10k for 10months, your lump sum would be 1L.

2.Fixed Chit fund

Here, the chit member can call out for the month he/she requires, but based on the month you pick more earlier, the more amount will be deducted in your total lump sum, the month you pick more late, the more amount will be added in your total lump sum.

Hence the total lump sum will not be equal to the sum of the monthly fixed amount you paid.

Over the above picture, you can see the monthly amount of 5000 paid for 21 months in 2nd column, and the lump sum over the each month, in which the first month lump sum are less and last month lump sum is more, as per our above statement.

Thus, the remaining b/w 22,05,000( 21members*5000 rupees*21 months) and 21,24,000(total of lump-sum shared to all 21 members for all 21 months) was 81,000 was purely dedicated to Chit lead, over his risk on conducting and managing members, who might sometimes abscond once lump sum is received.

Points to Note:

1.Less risk compared to Mutual Funds/Stocks.

2.More risk, More returns. Less risk, Less returns.

3.Works purely on basis of trust of a person/chit lead, if himself absconded, loss for everyone:(

4.Any abscond of chit member will put hassle purely/only to Chit lead, who is responsible to carry out to other Chit member without fail.