Learn how to detect safe chit funds

 

Chit Funds provides a healthy source of financing for different types of people. Ex – small investors, businessmen, small scale industrialists etc. It is a contingency plan which requires sufficient cash amount. It can serve various needs like desire for saving or borrowing for extraordinary needs like marriages, construction bills, hospital charges. Chit funds can be used for bringing discipline in your savings and also as a future contingency source.

Chit Funds have earned a bad name because of Ponzi Schemes that have been perpetrated in India. This article is about creating awareness that how chit funds can be safe and how not to invest in scams. But before all that, let me explain how chit funds work.

Chit fund is an arrangement in which you are crowdsourcing for help when you have any financial irregularity and you pay for that help every month. It helps you create a savings backup which can be used without any hassle. Unlike banks, where fund sourcing can be a painful and a long task, chit funding can let you avail cash when you need it without disclosing why you need it.

Let us take an example where a group of 10 subscribers group up and pool Rs 10000 for 10 months

Thus total monthly collection in this chit fund = Rs. 100000.

Suppose in the 1st month, 3 members need funds and therefore participate in the bidding process.
Member 1 bids for Rs. 87,000
Member 2 bids for Rs. 86,000

Member 3 bids for Rs. 93,000

Thus, Member 2 is eligible to draw the money for the month because his bid is lower than the first member’s and third member’s bid. But, the bid amount of two members can be same and if their bid amount is the lowest among the group then in such a case lottery can be done to determine who is eligible for this month’s proceeds and that person will get the cash. But, he will be ineligible to participate in the upcoming auctions for all months left in the scheme. It ensures that everybody in the group is able to withdraw once when the scheme is run.

There will be a subscription fee for handling details of members, collecting money and conducting the auctions. For these duties, the companies are paid a fee. Let us assume the fee to be 5 % of the amount collected.

Thus, Handling fee = Rs. 5000 (5% of Rs. 100000)

Member 2 can now withdraw
Rs. 86,000 – Rs. 5000=Rs. 81000

The remaining Rs. 14000 (Rs. 100000- Rs. 86000) is distributed equally among all the members, ie: Rs. 1400 each.

So in effect, during the 1st month, each member contributes only Rs. 8,600 (Rs 10000 – Rs 1400)

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.

Chit funds can be a secure way of handling investments if you follow these certain rules that will never let anybody dupe you

• Check whether the company is registered under the Chit Fund Act, 1982
• Always go for organised chit funds companies. These are regulated and governed by the chit fund act. Also, these companies will be following the state regulations for chit funds.
• Do not go for the unregistered chit fund schemes. They are not legalised and they may be running a scam. This generally happens when a group of people assemble for this scheme without any authority.
• Look at the investors backing the chit fund company. The investors with good financial standing proves that the schemes are authorised and can be a good way to park your hard earned earning with increasing returns.
• A chit fund company with many years of experience is more reliable and trustworthy. They have successfully carried out many schemes which has benefited not only the users but also the economy.
• Go for companies who know their customers and their financial status so this reduces the risk of somebody defaulting a payment. So, reputed chit fund companies have the resources for due diligence and will not make defaulters a part of the scheme.
• Finally, look at the recommendations of the existing customers. There will be tons of information regarding the chit fund group if they are legitimate. Go for such companies who are not afraid to be on the digital media.

Chit funds are a safe instrument if you research in the company and scheme you are investing your money. Adequate care is necessary to choose a suitable Group or company that deals in chit fund schemes. The selection of a particular Group, largely depends on the subscriber’s capacity to provide surplus funds month after month from his normal income for this scheme. This aspect is highly important for the subscriber as well as the company’s point of view to avoid any embarrassment at the time of releasing the prize money or in releasing chit installments month after month. This can only be carried out by specialised companies dealing in Chit Fund Schemes. They can guarantee success with a greater ROI and help you tide over many financial problems.

Shanthala Chits Pvt Ltd is a registered chit fund company since 1996, and is highly reputed for its trustworthiness. Their customer service surpasses every benchmark as they are not only reliable but also quick in their payments. They are a strict follower of Chit Fund Act of 1982 and have an excellent track record. So, Let us invest in chit funds and make our future brighter and securer together.