Chit funds stand out from other financial instruments because they are a combination of monthly participatory savings and a handy contingency fund. The idea of having an investment fund that you can borrow from when you need a little capital, without worrying about credit scores and filling in a lot of paperwork, seems too good to be true to most people. In many cases, chit fund promoters find a way to keep subscribers from accessing all the benefits this allows. To understand the risks of investing in chit funds and appreciate the ways in which Shanthala Chits works to offset those risks, one first needs to understand how chit funds work.
In a standard chit fund, you have a foreman who gathers a group of subscribers together. Each subscriber pays the same fixed amount per month for a fixed amount of time. The total savings paid by all subscribers for the month becomes that months kitty; if a subscriber needs immediate funds, he can take the whole months kitty for that month without having to formally apply for a loan from a bank. In most chit funds, a bid decides who gets the full amount for that month (whoever is willing to settle for the smallest amount wins the bid, and the leftover amount in the kitty is paid back to all subscribers as interest at the end of the fixed time). This means that the person taking the loan has to forgo a certain amount from the kitty, and also means that the final interest received by subscribers varies depending on the bids placed.
The main risk of most chit funds is the uncertainty of not knowing exactly how much interest you will receive, as well as knowing you will have to forfeit an unknown amount of the monthly kitty in order to win the bid for it. Another risk is falling victim to unverified promoters who might make away with the whole amount, which is why it is important to make sure your chit fund is part of an established company.
Shanthala Chits’ core differentiators are all aimed at counteracting these risks and making sure our subscribers receive the greatest possible benefit out of their chit funds. We ensure our clients fixed returns at the end of their subscription period, and our bids are decided by lucky draws rather than forfeiting funds, in order to make sure there is always a fixed loan amount and that bids don’t result in lower interest for our subscribers.
The best thing about chit funds are their versatility; everyone from housewives putting away a few hundreds or thousands of rupees a month, or university students setting money aside to pay back their college debt, to business people saving several lakhs at a time and looking to accumulate interest and take large loans can find a subscription group that suits their savings denomination. If you’ve ever been suddenly strapped for cash or wanted to make a decent amount of interest on your monthly savings, chit funds are the perfect instrument for you.
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