A chit fund is a financial instrument that is a combination of savings and borrowings. It has been a part of India’s financial system for more than a century. At its most fundamental level, in a chit fund, a group of people or subscribers agree to contribute a fixed amount every month for a fixed period of time to a corpus. This amount is auctioned to the lowest bidder and the left over funds are distributed equally amongst the remaining members as dividend after deducting the organizer’s commission.
The Benefits of Chit funds are:
Saving and investment tool: Chit funds offer you the advantage of saving as well as borrowing.
Quick access to money: It’s easy to join a chit fund scheme, and you have the opportunity to borrow the lump sum (the pot) by just paying the first instalment.
No or less paperwork: It’s a great product to meet the financial needs of people without providing documents such as IT returns, PAN card etc.
No collateral: Unlike banks and other financial institutions which ask for tangible security, the chit fund is given on personal sureties.
No questions asked: You don’t need to reveal the purpose of using the borrowed money (the pot).
Emergency cash: You can easily access the money to meet an unexpected expense or a financial emergency.
High dividend: The subscribers get a dividend which is comparatively higher than the interest accrued on the money saved in various deposit schemes.
Low interest: The subscribers mutually determine the interest rate, and it varies from auction to auction. Additionally, the interes t rate of borrowing from the chit fund is comparatively lower than other forms of borrowing.
Flexibility in its usage: You can draw upon your chit fund for any purpose you wish – marriages, shopping, travel, medical expenses, religious ceremonies, festivals, children’s education, etc.
