Chit funds are an extremely popular type of savings scheme for Karnataka economy that is operated in India. Chit fund companies are able the management, conduct or supervise chit funds according to the Chit Fund Act 1932. Everyone is required to sign up for a specific amount of money (or an amount of grain) for a specified time by way of periodic installments and every subscriber has the right to a price that is determined by auction or lot or tender, or any other way as stated in the chit contract.

What is The Role of Chit Fund?

Chit funds are a savings plan that benefits local economies in India. The role of chit funds is to operate in a distinct manner, and could cause a number of scams that are employed by private companies. In the process of establishing a chit fund an entire group of people contributes to the chit value each participant in the group is awarded the prize and the dividends go to the other members. For instance, if we take an chit worth of Rs. 1,00,000 and there are 50 people within the group, each member must contribute Rs.2000 which means that (502000) Rs.1,00,000 can be taken.

Approximately 45% is the maximum amount that can be bid this means that an individual writes off Rs.45, 000 and the remaining sum of 55,000 goes to the person who won the prize. Members must contribute the amount of Rs. 1200 (2000-800) during the following month. Rs.800 ($800) can be declared as a dividend in that month.

If there aren't any minimum bidders, then members must bid in the auction, which lasts for 5 minutes per group and the bidder who has the most is declared the winner. For instance, if a winning bidder was announced as 40% during the tenth month of the year, everyone in the group will be paid an income of 700 rupees. 700, i.e. (35000/7) and every member is eligible to pay Rs.1300per month towards the installment.

So, members are required to pay installment amounts that are lower than the dividend. The dividend received is considered to be as interest on the installment payments that the economic stability has made. Successful bidders will be required to offer a guarantee based on the liability that will be incurred by the chit.

What are the Features and Economic Benefits?

• There is a set amount and time.
• Chi funds combine savings and credit into one scheme.
• Chit Fund fulfils the financial needs of families with moderate earnings.
• The interest rate of the chit fund is lower than that of other moneylenders.

Types of Chit Fund

1. State-Run Chit Fund

This kind of chit fund is managed through the state. In this kind of chit fund, losses are low and the business operations are clear. Kerala State Financial Enterprises and Mysore Sale International Limited are examples of a State-run Chit Fund.

2. Registered Chit Funds

The Registered Chit Funds are a form of fund that has been licensed by the Registrar of Firms Societies and Chits. Chit funds are regulated by the Indian state authorities, under the supervision from the Reserve Bank of India, supported through the Chit Fund Act 1982. Chit funds registered as a chit fund are the most secure investment since they are controlled by the legal framework, and the risk is fully covered.

3. The unregistered Chit fund

Chit funds are Chit funds that are arranged with a small group of family member’s family members, colleagues, and peer-groups. This type of chit funds is a risk since they aren't legally legal. Risk management and formation of these types of funds are based solely on the trust of the individual. It is surprising that the number of chit funds that are not registered is higher than registered chit fund, because for this type of chit fund, there are no chit fund regulations to be followed.

Why Choose Chit Fund?

• Chit Fund is a versatile product since it functions as a borrowing and investment tool.
• It's easy joining a Chit funds scheme because you have the possibility to take out the amount in a lump sum that is not secured by any official collateral.
• There is no need to reveal the reason you are the borrowing of a lump sum.
• You are able to easily access the funds to cover any community financing emergency.
• The subscriber is paid a dividend that is typically greater than the interest earned on the funds saved in a variety of deposit schemes.

Is Chit Fund Investment Safe?

To aware of financial challenges, the following information has proven an investment in the chit fund is secure.

• The person who owns the chit fund is required to provide 100% of the amount in chit in cash to the register.
• The deposit can be taken out only after the chit fund has ended.
• The Chit Fund Act 1982 governs Chit fund businesses.
• The Government of India appoints the Chit registrar as per Section 61, Register of Chit Fund Act 1982.
• Chit fund companies must be registered.

Conclusion

If it's to meet the immediate or longer-term requirements savings and investment has been the most popular choice for all.

Make sure to remember when investing in Chit fund has to be conducted after careful analysis of the fund's management and the organization. If you plan investing in Chit funds ensure that you choose one that is regulated according to the Chit Funds Act 1982 to stay away from fraud-ridden funds.