![]() In your overall financial roadmap, it ‘s hard to map it to a goal, as you may be either saving or borrowing, i.e. It can be either a savings or a borrowing scheme. It also works as a savings scheme for those who don’t need the money immediately. What is wrong with the rationale of Chit Funds?Ĭhit funds work on a simple logic of collecting funds from a group of people and distributing it based on the urgency of their requirement. Since chit funds don’t conduct background checks or credit score checks, it is easy for people with low credit scores also, to avail finance. The monthly contribution will also be as low as Rs.200, to as high as Rs.5 lakhs per month. The chit amounts range from as low as Rs.5,000 to as high as Rs.1 crore. ![]() It also saves them the hassles of paperwork, as in the case of loans.Īlso, it acts a small savings scheme for many people, as the chit funds run many chits, with various denominations of the chit amount. The reasonably quick access to the chit amount is very convenient for them, to raise capital when needed. Well, there are many small businessmen, housewives, etc., who depend on chit funds for many of their needs. Though the logic seems simple, there are a lot of risks associated with it, which might make your savings vanish into thin air.Īlso read: Sachet: a new initiative by rbi to curb illegal money collection schemes Are chit funds useful? Depending on the bidding amount, the monthly amount that is to be paid by the subscriber is always less than the upper limit of Rs.1000. The profit the subscriber makes from the chit is the distributed dividend, which he receives immediately. The profit derived is distributed equally, and is called as the dividend. This way, bids are invited every month for 20 consecutive months, and the chit amount is given to the lowest bidder, till every subscriber gets the chit amount once. So, in the 2nd month, every subscriber of the chit has to pay only Rs.750. In the 2nd month, Rs.5000 deducted from Mr Nakul will be distributed among all the 20 chit members. After this, Mr Nakul is not allowed to bid again but has to continue to pay monthly subscriptions. This commission is deducted from the amount given to the bid winner. The foreman/agent/company which organises the chit also has to be paid a commission, which could be up to 5% of the bid amount.įoreman/Agent commission = 5%*20000 = Rs.1000 This Rs.5000 is considered as “profit” of the chit. he is willing to forego Rs.5000 so that he can get money immediately. Mr Nakul wants money immediately, and bids at Rs.15, 000 i.e. Any subscriber, who is in need of money, can bid for the chit amount, at a lower amount than it.Īssume. Once the first month’s payment is received, bids are invited from all subscribers. ![]() The agent is responsible for bringing together, people with similar saving capacity, or similar borrowing requirements.Īmount collected per month = 20*1000 = Rs.20, 000 – this is known as the Chit Amount. The subscribers of this chit, pay the monthly subscription amount to the chit fund company, also known as agent/foreman. The new chit is open for 20 people, with a maximum contribution of Rs.1000 per month for 20 months. Assume it starts a new chit, from April 2017. The ABC Chit Fund Company runs the chit fund business from past 10 years. Let us look into a case study to understand how the chit funds work. ![]() Also, individuals with low credit score, tend to utilise these schemes for borrowing.īut is it a good savings/investment scheme?Ĭhit funds come with a high degree of risk, to the possibility of the chit fund owner escaping with the collected money, to the subscribers refusing to pay after taking their chit amount, the chances of fraud are very high. Lot many unregistered chit funds operate throughout the country, run by a network of friends, relatives, etc.īeing a savings cum borrowing scheme, it attracts a lot of people who want immediate liquidity or want to raise an immediate capital/loan. ![]() Though Chit funds, also known as a kitty, chitty, etc., are recognised by the government under Chit Fund Act, 1982, there are very few chit funds which are registered. #Chit fund excel calculator how toLearn how to mange your money & create wealth, Download your FREE eBook now The concept of chit funds is very native to our country. They are savings cum borrowing schemes, which brings both the savers and borrowers on the same platform, which is owned by the Chit Fund owner. Here are few points to ascertain whether Chit Funds are worth Investing or not:Ĭhit funds are very popular among small business people, homemakers, lower and middle-income class, alike. ![]()
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