Chit funds are one of the most popular return-generating saving schemes in India. It is a financial arrangement in which a group of people contribute money to a fund on a regular basis. Each member of the group is eligible to receive a cash prize or loan, usually on a rotating basis. Chit funds are organised and managed by a chit fund company, which scrutinises, supervises, and manages chit fund schemes in accordance with Section 2(b) of the Chit Fund Act, 1982.
If you are considering investing in chit funds schemes, here’s a list of the top 10 chit funds to invest in India. Read on!
The following are some of the most successful and popular chit fund houses in India:
Ramoji Rao established Margadarsi Chit Fund Private Limited in October 1962. This chit fund company has 3 branches in the states of Tamil Nadu, Karnataka and Andhra Pradesh. One of its well-known schemes is STE. When an applicant pays Rs. 200 every month for a period of 25 months, the scheme’s chit value will be Rs. 5,000. Under the STF scheme, if an applicant pays Rs. 400 every month for a period of 25 years, its chit value will be Rs. 10,000.
It is the country’s biggest chit fund and most probably an extremely secure one. Nearly 6,000 employees work in this firm and it operates in the states of Maharashtra, Tamil Nadu, Karnataka and Andhra Pradesh. An individual may invest in its schemes if he/she wishes to accumulate funds for any event. The entity’s customer count is 22,00,000.
The Kerala State Financial Enterprises has introduced a chit fund or chitty. It is one of the best and safest chit funds in India only because the Government of Kerala backs it. The individual who places a bid by allowing for the highest reduction in prize money gets the total amount of chitty or subscription. This scheme is only available to the individuals in Kerala.
The Government of Karnataka launched this institution. The business commenced in 2005. The schemes of this firm are famous among the masses as they take in small amounts at the start. This fund is beneficial as it finances people during an emergency and offers hard cash.
This is a public limited company, incorporated in 1879. It got its registration at the Registrar of Companies, Chennai. This entity’s paid-up capital is around Rs. 73,50,000, and the authorised share capital is nearly Rs. 2,00,00,000.
Now that you’re familiar with some of the best chit funds in India, let’s discuss this type of savings scheme in detail.
Guru Nanak Chit Fund Private Limited is a private unlisted company which was incorporated on June 29, 1964. Its authorised capital is Rs. 0.2 lakh. Its paid-up capital amounts to 7.5000005%, which is around Rs. 0.02 lakh.
Amruthadhara Chits And Finance Private Limited is categorised as a non-governmental private company. It was established on December 31, 1900, and registered with the Registrar of Companies in Ernakulam. Its authorised capital stands at Rs. 2.5 lakh. Its paid-up capital amounts to 18.4% which is around Rs. 0.46 lakh.
Kapil Chit Funds was established as a private limited company on August 29, 2008. It is registered with the Registrar of Companies, Hyderabad. Currently, its authorised capital stands at Rs. 50 lakh.
Sree Gokulam Chit & Finance Co. Pvt. Ltd. (SGCF) began in Mylapore under the Gokulam Group of Companies. It began operating on July 23, 1968. Currently, it has branches in Kerala, New Delhi, Tamil Nadu, Andhra Pradesh, Karnataka, Telangana, Maharashtra, Puducherry (Pondicherry), and Haryana.
Louis Chit Funds Private Limited was incorporated on January 1, 1901. It is a private unlisted company that has been classified as an ‘organisation restricted by shares’. Its authorised share capital stands at Rs. 50,000 and its paid-up capital amounts to Rs. 48 lakh (96%).
Let’s understand the concept of chit funds using an example.
Suppose 5 people come together to start a chit fund scheme. Each one pays Rs. 2,000 once a month for 5 months (Number of people in a scheme = Number of months). Under this group, there’s an organiser who looks after auctions and meetings. He would impose an organiser fee.
In the 1st month, these 5 individuals meet and pay Rs. 2,000 each. Now, the total money available is Rs. 10,000. Three of them bid for Rs. 10,000. First individual bids for Rs. 8,000, second individual bids for Rs. 7,000 and third individual bids for Rs. 9,000.
Since the second individual bids the lowest, he receives the sum of Rs. 7,000. The organiser will levy a 5% fee, which will stand at Rs. 500. So, the second individual will draw Rs. 6,500. Next, the outstanding profit of Rs. 3,000 has to be uniformly distributed among the 5 people. Everyone will get Rs. 600. Different individuals will bid every month and this procedure will continue till 5 months.
Here are some of the benefits of a chit fund:
There’s a lot of flexibility in terms of the amount of contributions towards chit funds, as well as the timing and size of the prize or loan disbursements.
Chit funds typically have low contribution requirements, making them an affordable option for people with limited income.
Chit funds are often conducted entirely online, which makes it easy for participants to manage their accounts and make contributions.
Chit funds can provide an alternative source of credit for people who may not qualify for traditional loans due to lack of collateral or credit history.
Chit funds can also be used as a way to save and invest money over the long term, as the value of the fund grows with each contribution.
Chit funds are a popular investment option in the rural areas. However, you need to do considerable research before investing in a chit fund. There have been cases of illegal chit firm houses sweeping off lakhs of money from investors. Consider all these risks before investing in a chit fund scheme.
Ans: The Registrar of Firms, Societies and Chits offers registration to chit fund companies. The Reserve Bank of India (RBI) regulates registered chit funds under the Chit Funds Act, 1982. The Registrar of Companies provide an incorporation certificate to these funds.
Ans: An unregistered chit fund is an investment scheme that is managed among colleagues, family, friends and neighbours. These kinds of funds are riskier compared to registered chit funds. This is because they are not liable to pay the deposited money to the subscribers.
Ans: The returns from chit fund schemes vary from company to company. It is based on the bidding rate for a particular scheme. The commissions involved in operating these funds minimise the overall returns. That said, the government-backed and registered chit funds offer favourable dividends. Individuals who want to make small monthly savings can opt for these funds.
Ans: Individuals from the lower-income category can apply for the chit fund schemes. These funds offer a comparatively lower interest rate than other lenders. Besides, they have a pre-defined tenure and value. They generate a lump sum amount from the deposits of the members.
Ans: Goods and Service Tax (GST) is applicable to the services that are offered by the foreman of a chit fund. The GST Council introduced this tax in 2017. With Input Tax Credit (ITC), the GST rate on chit funds stands at 12%.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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