If you associate "chitfunds" only as high risk investments, thanks to the Saradha scam, you probably are wrong. There are many chit funds that are managed by the state governments and are hence safe, while others are managed by companies that have been in the business for many decades now. Before we take a look at some of the finest and best known chit funds, take a look at how they work.
How chit funds work?
Some small artisans tend to put money in chit funds if they need money for a particular occasion. For example, if they have a marriage one year down the line, they can withdraw the chit fund amount at that time. Now let us see this with an example. If there are 15 members and the duration of the chit fund is 15 months and each person pays Rs 1000, then the amount collected each month is Rs 15,000. If there are people in need of money in the very first month then they could bid for the amount and if the bid is settled at Rs 12,000, then the person who has won the bid would get Rs 12,000, while the rest would not pay Rs 1,000, but less, since the chit fund amount has gone for lesser amount. The one who picks last would get near Rs 15,000, but his benefit is that he has never contributed Rs 1,000 for 15 months, which means he contributes less and gets more. In any case take a look at some of the best chit funds in India.
Mysore Sales International
This chit fund is a Government of Karnataka institution. The chit funds business started in 2005. The company has schemes that cater to all. These schemes are very popular as they incorporate small amounts to start with. The best part of this chit fund is that it is very safe, since it has the government of Karnataka backing. To that extent they are very safe and there is no reason to worry. The advantages of the chit fund is that they provide hard cash and are available during a crisis.
Government of Kerala backed Chitty
The Kerala State Financial Enterprises also conducts a Chitty or Chit Fund. This again is a very safe and one of the best chit funds, simply because it is backed by the government of Kerala. The total of the subscription amount or the chitty amount, is given to the person who bids by allowing for the maximum reduction in the prize money. This fund is largely restricted to people in Kerala and that is probably the disadvantage as the network is largely based in that state.
This is the largest chit fund in the country and probably a very safe one. Interestingly, it has almost 6,000 employees and also serves states like Andhra Pradesh, Karnataka, Tamil Nadu and Maharashtra. This is one of the oldest chit funds in India from the private sector. One can invest in them if one has plans to accumulate money for an event. The company has a staggering 22,00,000 customers. Also remember the tax liability that could arise from chit funds, which one needs to pay.
Margadarsi Chit Funds
Margadarshi Chit Fund Private Limited was established in October 1962, by Ramoji Rao. Chit fund is an individual financial concept, which has the flexibility to borrow or save. By paying one-month installment amount, a person can get to borrow from the chit value. Margadarsi Chit Fund Private Limited has three branches in three different states in Andhra Pradesh, Karnataka, Tamilnadu.
Margadarsi Chit Fund Private provides various schemes like one of the names of the Scheme is STE. If a customer pays monthly Rs.200 for 25 months, the chit value is Rs.5000. Another Scheme is STF, under which the customer pays monthly Rs.400 for 25 months and the chit value is 10,000.
What are the returns from chit funds?
It is difficult to say what are the returns from the various chit funds in the country. It really depends on the rate of bidding for the fund. There are also some commissions to run the fund, which reduces the overall returns. These days the chit funds are losing a little sheen which is a big disadvantage. A question also arises on the safety of some of the chit funds mentioned in the article. We have tried and stayed focused on some of the large chit funds in the country and some of the government backed chit funds. This means that the chances of another Sarada type episode happening is almost limited. However, chit funds in the past have proven to be risky and hence one needs to exercise some caution before investing. Investors who wish to save in small amounts every month can go for these funds, especially small artisans and businessmen.