Chit funds, have a rich history in India as a popular savings scheme that dates back to ancient times. Many potential investors today may have concerns about the safety of investing in chit funds. However, chit funds have evolved over time to become a secure financial savings option, making them a preferred choice for a wide range of savers.
To ensure a secure investment in chit funds, it is advisable to work with a reputable and registered chit fund provider like Rajayoham Chits Private Limited.
Chit funds, or "chitu," are a form of rotating savings and credit systems recognized in India. They provide a unique financial product for individuals seeking to save and access funds when needed.
Chit funds operate as a collective savings service, where a group of individuals regularly deposits a fixed amount of money, taking turns to receive a lump sum payout. The selection of who receives the payout is determined through either an auction or a lucky draw.
Let's illustrate how a chit fund operates with an example:
Imagine a chit fund with 12 members, each contributing Rs 5,000 on a monthly basis, resulting in a total monthly chit fund of Rs 60,000. This amount is collected by the chit company.
The distribution of the fund can occur in two ways:
1. Lucky Draw: The chit fund organizes a lucky draw, and the member whose name is drawn receives the payout. Over the course of 12 months, each member takes home the payout once.
2. Auction Mechanism: Members can express their interest in receiving the chit fund amount to meet specific needs. For instance, if Babu requires 70% of the chit fund amount (Rs 42,000) for urgent medical expenses, an auction takes place. The chit company deducts a fixed commission, and the remaining amount is distributed equally among the other 11 members. This process continues monthly until each member receives the payout once.
The unique features of chit funds make them a compelling savings option compared to traditional banks and moneylenders. Some of the advantages include:
1. Flexibility to save and borrow within the same scheme.
2. Collateral-free borrowing with minimal paperwork.
3. Quick access to funds.
4. The possibility of winning the payout before completing all payment installments.
5. Ideal for emergencies without the need to disclose the reason for the withdrawal.
6. Potential for higher dividends compared to other savings options.
7. Low-interest rates for borrowing.
This innovative savings scheme allows individuals to play the roles of both savers and borrowers based on their financial needs. The chit fund operates over a predetermined period with fixed contributions, providing a versatile and accessible financial tool.