Saving for the future is part of the Indian ethos. Whether it is for a daughter’s wedding, purchase of a house or life after retirement, families start their planning well in advance. We teach a growing child the precious habit of saving by gifting a piggy bank. “Live within your means and save for a rainy day” is a popular advice elders give to the next generation.
The top 3 considerations of an Indian householder when it comes to financial investments is maximising returns, security of investment and minimising tax liability. This is all achievable through long term financial planning. Making long tenure FDs, investing in gold, purchasing land are the most popular saving methods for the long term. These instruments may guarantee good returns and safety of the investment.
But in all this focus on the long term, there is a crucial element we tend to neglect. What about the short term? How to ensure financial liquidity for immediate needs? How to handle financial emergencies, do we have contingency funds? What about this year’s summer vacation travel plans? Or that new bike you promised your kid brother? Or god forbid, a sudden health emergency? How to meet these expenses in the near future?
When speaking in the context of a business, a company may have a strong balance sheet with solid fixed assets and a steady order book. But the biggest reason that companies cite for failure is not long term viability. It is a short term working capital crunch.
However, one important point to remember is that short term financial planning cannot be at the cost of sacrificing long term goals. We need both to live a secure and happy life.
Coming to the various options available for short term financing. Let’s consider them one by one.
Savings Account –
The most obvious answer from anybody you ask would be “I keep sufficient reserve funds in my savings account”. Though a quick and convenient option, bank savings accounts fetch close to zero interest. So it is basically money lying idle. Some people tend to keep even lakhs of rupees in their savings account, just out of fear of emergencies!
If you don’t have enough, then borrow. That’s the standard fall back option. Whether it is a credit card, a bank overdraft or a personal loan, all of them are instruments of debt. This is a very expensive and inefficient way to manage your finances. Paying exorbitant rates of interest apart from having the liability of repaying the principal is a big drag on your finances. Even a small default can cause a big setback. If you trying borrowing from friends or family, you risk spoiling personal relations with them. Say No to debt, simple.
Withdraw from long term savings –
It might be emergency withdrawal from your PF/PPF accounts, breaking an FD prematurely or selling off property. All options take time, involve lots of procedural effort and jeopardise your long term safety.
Chit Funds –
An alternative option popular with the unorganised sector and household women in the past. It is slowly gaining acceptance among the new age investors and self-run businesses. Since it serves as both a saving and borrowing instrument, it comes with the twin advantages of good returns and easy liquidity.
When you open a new chit scheme for a lump sum amount with a fixed 2 or 3 year tenure, you start paying monthly instalments along with all the peers in the same chit scheme group. At any time during the tenure, you can choose to bid for the lump sum and withdraw the entire money with zero debt liability. The later you withdraw, better your returns would be. But in case of emergency, you have an immediate source of funding right at your fingertips.
Out of all the above options for short term financing, we can see that chit funds are very attractive and viable. The only factor that weighs upon the minds of an investor in the fear of scams and financial fraud. When an investor picks a registered chit fund house, all the government regulations and safeguards come into effect as defined in the Chit Fund Act, 1982. So your investment is as safe in a registered chit fund as in any other financial institution.
So the next time you make plans for short term financing, consider investing in a chit fund. Happy investing!
Shantala Chits is in the business of chit funds for over 2 decades now. We are a Government approved chit fund company with a 24 year successful track record and thousands of satisfied customers. Shanthala Chits is registered under the Chit Fund Act of 1982, Government of Karnataka. We are one of the most popular chit fund houses based out of Bengaluru, known for our customer satisfaction and secure investments. Get in touch with us and start with an investment scheme. We will be glad to help you out with the right scheme that matches your needs.
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