What is Chit
A chit fund is a rotating saving scheme that has been a part of India’s financial system for more than a century now. It is also known as chit, chitty or kuree. Chit fund is an excellent financial instrument for both – saving and borrowing. As a savings instrument, it gives a good return on investment, and as a borrowing scheme, it can be a reliable source of funds in emergencies and otherwise
Features of Chit Funds
- They are a credit and savings schemes rolled into one.
- They act as a microfinance institution.
- They have predetermined value and duration.
- They allow you to borrow at an interest rate lower than moneylenders.
- They are best for meeting the financial requirements of people belonging to lower-income households.
- The deposits made by all the subscribers are turned into a lump sum.
Benefits of Chit funds
Saving and investment tool
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Quick access to money
It’s easy to join a chit fund scheme, and you have the opportunity to borrow the lump sum (the pot) by just paying the first instalment.
No collateral
Unlike banks and other financial institutions which ask for tangible security, the chit fund is given on personal sureties.
Low interest
The subscribers mutually determine the interest rate, and it varies from auction to auction. Additionally, the interest rate of borrowing from the chit fund is comparatively lower than other forms of borrowing.
Flexibility in its usage
You can draw upon your chit fund for any purpose you wish – marriages, shopping, travel, medical expenses, religious ceremonies, festivals, children’s education, etc.
Emergency cash
You can easily access the money to meet an unexpected expense or a financial emergency.
