Chit funds are valuable financial instruments designed to benefit disciplined investors. These instruments provide flexibility and the convenience of saving and borrowing while boosting investment opportunities through financial inclusion. Chit funds are safe investments with good returns in India that help you develop the habit of saving up to secure your future.
However, the true potential of chit funds lies in your smart investment strategies and how you choose to use this tool to your advantage. The process of pooling money in a chit fund is similar to a group of friends or neighbors pooling money together to create a fund pot for emergencies. So, the idea really dates back to the ancient Indian customs of pooling money - the difference being that many chit funds are registered and reliable.
An Overview of Chit Funds
Chit funds act as a dual mechanism of savings and borrowing, which allows participants to use their funds whenever needed. This traditional investment tool offers a unique blend of structured savings plans and liquidity. This investment scheme has been a significant part of India’s financial landscape for decades.
At the end of each cycle, one participant receives a share of the fund based on a lottery or bidding process. There is no minimum investment tenure or maturity period in chit funds. So, you can gain access to funds instantly, especially in times of need. The bidding or auctioning continues until all the participants have received their shares in every cycle.
Types of Chit Funds
Based on their registration status, the three main types of chit funds include:
- Private Registered Chit Funds: These are operated privately but are regulated by the state government under the Chit Fund Act of 1982. Since they are obligated to remain compliant with the laws and regulations of the Chit Fund Act, they are considered safe and secure.
- State-run Chit Funds: These funds are regulated and managed by state governments and are generally more transparent. Besides, they often involve the Public Sector Undertakings (PSUs) and are considered low-risk schemes due to their strict regulations. Some examples of state-governed chit funds include Kerala State Financial Enterprises (KSFE) and Mysore Sales International Limited (MSIL).
- Unregistered Chit Funds: Unregistered chit funds are operated by close-knit groups, and they operate outside the state regulations and the overall legal framework. These are not regulated by an authoritative body, and so, they involve higher risks. However, unregistered chit funds are common amongst associates or individuals who trust each other and have decided to pool a certain sum for a common financial goal.
Benefits of Investing in Chit Funds
Let's understand why chit funds can be a lucrative and beneficial option for investors.
- Dual Purpose of Saving and Borrowing: Chit funds allow investors to make monthly contributions, and at the same time, they can use them as a borrowing tool. You don’t need collateral for borrowing money, because you are winning the funds as prize money as a result of an auction process.
- Convenient Financial Support: Chit funds offer a unique system of pooled savings and borrowing, allowing members to access funds as per their needs. Compared to traditional financial institutions, they provide a more flexible and convenient way to manage financial requirements. Therefore, borrowing via chit funds is more cost-effective.
- Financial Inclusion: Chit funds offer quick and easy access to funds for financially excluded communities. Such benefits are more enjoyed by the nation's vast informal sector, which plays a significant role in contributing to India's informal economy. Therefore, chit funds are more easy-going for communities with limited financial literacy and face challenges obtaining loans, like personal loans or home loans.
- Easy Access to Funds: You can withdraw the funds quickly and use them for any purpose. For instance, you can access the capital for different purposes, such as medical expenses, travel, marriage, education, debt repayments, reinvesting, or emergencies.
Tips to Unlock the Complete Potential of Chit Funds
To maximise success and returns with chit funds, consider implementing these tips and ideas to unlock the full potential of these effective and safe financial tools.
Avoid treating your auction gains as windfall gains. They are the returns on your investment, so consider either reinvesting them or using them wisely.
Check whether you are able to fit the investment comfortably within your budget.
- It will help you place your bids strategically and at the right time.
- Keep a tab on your dividend earnings and your monthly contributions using a real-time and transparent tracking tool.
- Ensure that your plans and contributions are aligned with your risk appetite and personal financial goals.
- If you have no urgent cash requirements, consider staying invested for a longer period. Long-term chit plans, such as if you choose to bid after 35–50 months, you can enjoy higher dividends.
Reasons for Choosing Margadarsi Chit Fund
Margadarsi Chit Fund is a trusted name in Hyderabad and has been empowering investors for over 60+ years. We conduct an auction every month, allowing participants to bid via a transparent process, and the winner is selected unbiasedly. We provide financial security as a priority and work on preserving the community’s financial health and well-being.
Key Takeaways
Chit funds are ideal for investors who find the idea of quickly withdrawing a lump sum amount intriguing. These are safe investments with good returns in India, particularly if you are signing up for a registered plan. So, take the plunge and take complete advantage of earning good returns through the strategic use of your chit plan.
