Skip to main content

Invest in chit fund or not?

 

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

 

 

 

A chit fund is a savings cum borrowings scheme, wherein a few people (known as members or subscribers) come together and invest a fixed amount every month for a fixed period. While the concept of chit funds has been very popular in South India for several decades, other states in the country also have chit fund concepts today.

Various State and Central regulations regulate chit funds in India. At the central level, the Chit Funds Act 1982 governs chit funds. Some states also have state-level laws. Chit funds have been associated with fraudulence for the past couple of decades. Many fraudulent chit funds have closed down. Nevertheless, a few large chit companies have retained their popularity among people.

Let's understand more on chit funds:

How does a chit fund work?

In a chit fund, the number of months for which the investment is made is the same as the number of subscribers in the scheme. Every subscriber gets a turn to take the total amount collected in a month; this means, in every month, one subscriber will get the collected amount. The subscriber to get the money will be decided based on a bidding system. Once a subscriber gets his turn, he is not allowed to participate in the bidding again. Generally, those who are in need of money in a particular month participate in the bidding, and the subscriber with the lowest bid is allowed to take the amount. The chit fund scheme is managed by one of the members, who is known as the Foreman. He is responsible for collecting the subscription amount from the subscribers, recording details of members and conducting the auctions. For these duties, he is paid a fee, which is generally 5% of the amount collected. The Foreman's fee is reduced from the amount paid to the subscriber who wins the bid. Any extra amount from the monthly collections is distributed equally among all the subscribers.

Illustration: Let's assume there is a chit fund with 10 members contributing Rs. 3,000 each per month for 10 months. The total monthly collection in this chit fund is Rs. 30,000. Suppose in the first month, there are 2 members who need funds, who participate in the bidding. One member bids for Rs. 27,000 while the other member bids for Rs. 26,000. The second member becomes eligible to draw the money for the month as his bid is lower than the first member's bid. If there is more than one member bidding for the same amount, which happens to be the lowest amount, a lottery is drawn to determine which of the members will be eligible for withdrawing the amount. In this illustration, the second member can withdraw Rs. 24,500 from the total collected amount (Rs. 26,000 – Foreman's fee of Rs. 1,500 (which is 5% of Rs. 30,000)). The remaining Rs. 4,000 (Rs. 30,000- Rs. 26,000) is distributed equally among all the members, ie: Rs. 400 each. So in effect, during the first month, each member contributes only Rs. 2,600.

In the second month, another member is given a chance to withdraw the bulk amount. Suppose this member bids for Rs. 28,000, the remaining Rs. 2,000 is divided among the members, ie: Rs. 200 per member. This process is repeated every month for a total of 10 months. On the completion of 10 months period, each subscriber would have withdrawn a bulk amount once, in addition to getting the monthly nominal amount. This monthly amount works like a dividend for the money invested. Rules for determining which member takes the bulk amount every month and also the withdrawal amount vary from one chit fund to another in different states.

Should you invest in Chit Funds?

This question can be answered from two angles – from safety viewpoint and investment viewpoint. In India, there are both large chit fund companies like Shriram Chits and Margadasi Chit Funds as well as several small unregistered ones. Registered funds are regulated and governed by law; but unregistered chit funds are not bound by any regulations. When fraudulent chit funds closed shop, several investors lost their hard earned money. It is therefore not advisable to invest in such unregistered chit funds. Further, it is not advisable to invest in chit funds where the other members are unknown to you. Thus, the key to investing in chit funds is in choosing the right one.

However, from an investment viewpoint, a chit fund does not promise returns for an investor. It is not possible to calculate exact returns from a chit fund as this depends on the level of emergency of members for funds, and this is a highly variable factor. That said, a chit fund is a good saving instrument for small investors and brings about a discipline in saving regularly. It is also useful in getting funds when in an emergency. As chit funds are essentially not investment products, you must consider investing in them only if you foresee a need for funds in the near future, which you may not be able to get from your bank, and thus start saving towards this need in a chit fund.

 

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

 

 

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

 

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

 

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

 

These Application Forms can be used for buying regular mutual funds also

 

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan  Invest Online
  2. HDFC TaxSaver   Invest Online
  3. DSP BlackRock Tax Saver Fund   Invest Online
  4. Reliance Tax Saver (ELSS) Fund   Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund  Invest Online
  7. SBI Magnum Tax Gain Scheme 1993   Invest Online
  8. Sundaram Tax Saver   Invest Online
  9. Edelweiss ELSS Invest Online

 

Popular posts from this blog

SBI Magnum Tax Gain Scheme 1993 Applcation Form

    https://sites.google.com/site/mutualfundapplications/tax-saving-mutual-funds-elss     Investment Details Basics Min Investment (Rs) 500 Subsequent Investment (Rs) 500 Min Withdrawal (Rs) -- Min Balance -- Pricing Method Forward Purchase Cut-off Time (hrs) 15 Redemption Cut-off Time (hrs) 15 Redemption Time (days) -- Lock-in 1095 days Cheque Writing -- Systematic Investment Plan SIP Yes Initial Investment (Rs) -- Additional Investment (Rs) 500 No of Cheques 12 Note Monthly investment of Rs 1000 for 6 months and quarterly investment of Rs 1500 for 4 quarters.

Birla Sun Life Tax Plan Online

Invest Birla Sun Life Tax Plan Online   An Open-ended Equity Linked Savings Scheme (ELSS) with the objective to achieve long-term growth of capital along with income tax relief for investment.   After a bad patch from 2008 to 2010, Birla Sun Life Tax Plan has made a big comeback in the last five years, with a particularly good run since 2014. The fund's rankings, which had slipped to two stars in 2011-12, recovered sharply to three-four stars in the last three years. The fund has delivered a particularly large outperformance over its benchmark and peers in the last couple of years. The fund's investment strategy focuses on a diversified and high-quality portfolio, with parameters such as capital ratios and balance-sheet strength used to judge quality. It uses a combination of top-down and bottom-up approaches to take sector/stock positions. The fund avoids highly leveraged plays. Staying more or less fully invested at all times, the fund parks roughly half of its portfoli

Should you Roll Over 1 year Fixed Maturity Plans?

The period between January and March typically sees an uptick in the launch of fixed maturity plans, or FMPs. Not this year. Instead, fund houses are busy rolling over or extending the tenure of their one- year FMPs launched last year to three years. Investors in one- year FMPs have a choice. Either redeem units or roll over to three years. If you exit now, your gains will be added to your income and taxed in line with your individual slab rate of 10, 20 or 30 per cent. If you stay invested for two more years, you pay 20 per cent tax with indexation benefit. Yields have softened in the past few months on expectations of a rate cut. If the central bank continues its soft monetary stance, yields are likely to fall further. In such a scenario, it makes sense for investors, particularly those in the 30 per cent tax bracket, to roll over their investments and lock in at a higher yield now. In a surprise move, the Reserve Bank of India cut repo rate by 25 basis

Mutual Fund Review: IDFC Premier Equity Fund

  IDFC Premier Equity Fund, which falls under the presumed high risk group of mid- and small-cap schemes, can rely on astute and timely equity picks. These make it less vulnerable to fluctuations compared with others in the category   IDFC Premier Equity Fund is designed to invest in upcoming, but promising businesses available at cheap valuations, and hold on to these businesses until they reap desired returns. The experiment has been successful so far, and IDFC Premier Equity has emerged as one of the top performing mutual fund schemes in the mid- and smallcap category of equity schemes.    While the scheme is an open-ended equity fund, i.e. open for subscriptions throughout the year, it has a unique philosophy to limit fresh inflows. Thus, while an investor can always take the systematic investment plan ( SIP ) route to invest in the scheme throughout the year, inflows through a lumpsum investment have been restricted. Since inception, IDFC Premier Equity has been opened for l

IDFC Premier Equity Fund dividend

  IDFC Mutual Fund   has announced dividend under the dividend option of   IDFC Premier Equity Fund Direct-D . The quantum of dividend shall be   R 4.3464 per unit.   The record date has been fixed as May 06, 2015. Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds Invest in Tax Saver Mutual Funds Online - Invest Online Download Application Forms For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call --------------------------------------------- Leave your comment with mail ID and we will answer them OR You can write to us at PrajnaCapital [at] Gmail [dot]
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now