Chit Fund: How It works?

Chit Fund: How It works?

What is a chit fund?

A chit fund is a type of savings where you deposit some amount every month to someone who manages the chit fund. Chit funds are often organized by financial institutions, or informally among friends, relatives, or neighbors. In some variations of chit funds, the savings are for a specific purpose. The money is either collected periodically and given to one member at regular intervals or collected at the end of the cycle and given to one person.

There are two types of Chit funds:

  1. Auction Based Chit Fund
  2. Chit Fund (Non-auction)

How chit fund works in India

A chit is an arrangement in which a certain amount of money (called the “Bissi”) is collected from each member, periodically or at the end. The participants are called subscribers. Members are expected to pay on a regular basis until the chit matures.

A chit fund is a group of members, which are called subscribers. The organizer, company, or trusted relative or neighbor sets up and administers group activities. In exchange for their work, the organizer is either compensated monthly or upon withdrawal. In some parts, it is also called “Bissi”.

The fund starts on a particular date and runs for the number of months equal to the number of subscribers. Each month, the subscribers pay their monthly installments. Then, the lowest sum a subscriber is willing to take that month is determined through an open auction.

Chit Fund

How Chit fund works with example:

If the monthly installment is ?5000 and there are 20 members, the pot in the first month will contain Rs. 1 lakh (100,000). If the auction determines a winner who is willing to accept ?90,000 for that month, ?10,000 of surplus funds will be distributed to other members. In the first month of the auction, a subscriber would get ?90,000, and others in the group benefited from their share of the surplus Rs.10000. so each member will get Rs.500 benefit. The process repeats, distributing the auction amount to a different member each month. All other subscribers, including those who received their share in a previous month, will continue paying regular monthly installments.

The system is a lending scheme because subscribers are able to get large amounts of money before they have paid off the full amount. It also acts as a savings mechanism, because each subscriber contributes every month and will receive their share of the surpluses in the future.

There are different ways to do this. This is similar to a lucky draw. Some people skip the auction and just have other people put their names in a pot. One name is taken out of the pot, and that person gets all of that money. The word “chit” comes from that type of arrangement.

Chit Fund Risk

Both organizers of and subscribers to chit funds are exposed to credit risk because people on the scheme might default on their monthly payments. In addition, if the chit fund does not run smoothly, or is badly managed, members might lose the money.

The whole idea of a “Chit Fund” is based on trust. If your friend or relative who has put together the chit fund cannot manage it properly you might end up losing all the money you put in.

The organizer of the chit fund is responsible for ensuring that the chit fund runs smoothly. The organizer may take a mortgage from members who get the money in the initial stage to protect the money of the other members.

The biggest risk involved with participation in a chit fund is default – if someone you are investing in defaults, you lose your money.

How to avoid chit fund risk? The possible solutions are as follows –

1) Check the integrity of the organizer. You can do a background check by checking if he/she is a reliable person. If you know about him/her, you would be able to judge his/her character better and make a better judgment.

2) Find out the background of your friend and his/her family members to decide if you are comfortable with them managing your money. If you don’t know much about their past, try talking to other people who know him/ her and find out more information from them.

3) Check for the history of the chit fund. In case, you are investing in a chit fund that was started recently, then it would be better to avoid it.

4 . Don’t put all your monthly savings in Chit Fund.

Online chit funds:

With eCommerce booming in India, now you can participate in chit fund schemes online. You can go through the various websites online and decide which one you want to invest in based on your comfort level.

Is Chit Fund Legal?

The short answer is Yes. Even govt. used to promote these types of funds when the banking system was not strong in earlier days. There are some chit fund companies that are registered. The general rule of thumb is to stay with the bigger ones because they will be less likely to try and scam you.

Apart from registered Chit Funds, it may also be run by your friends, groups, etc without registering it. It all depends on trust.

The international development community has also praised the chit fund system as an efficient way for people to save regularly, most commonly in regard to microfinance initiatives, and even the World Bank has recognized chit funds as an excellent way for people to save.

The following laws are in effect for chit funds:

  • Union Government – Chit Fund Act, 1982 (except UT Jammu and Kashmir)
  • Maharashtra: Maharashtra Chit Fund Act 1975
  • New Delhi: The Chit Funds Act, 1982 and Delhi Chit Funds Rules, 2007
  • Andhra Pradesh: The Andhra Pradesh Chit Funds Act, 1971
  • Karnataka: The Chit Funds (Karnataka) Rules, 1983
  • Kerala: Kerala Chit Fund Rules 2012 & Amendment 2016
  • Tamil Nadu: Tamil Nadu Chit Funds Act, 1961

Chit funds are an excellent way to save for the future, but there are many risks involved with this type of saving. You must do your research before committing any money to a chit fund and make sure that you’re comfortable with both the organizer and members. Avoid putting too much into one chit fund at once; diversify where possible!

ELSS vs Other Government Proposed Tax Saving Option

ELSS vs Other Government Proposed Tax Saving Option

ELSS or Equity Linked Savings Scheme is also called First Mutual Fund Scheme. Because most investors like to invest in mutual funds only under ELSS.

You can decrease your tax deduction by investing in ELSS, under Section 80C of the Income Tax Section, up to 1.5 lakh rupees annually. It has been observed that many investors start investing in ELSS so that they can save tax and then gradually they start to participate in other mutual funds and equity schemes.

If you are still thinking that ELSS is better for your tax saving or other government schemes, then my today’s article may prove beneficial for you because I am going to discuss this topic today.

If you are not investing in ELSS for tax saving then you should consider it again on your decision. Look for tax saving, many options are available such as public provident fund (PPF), National Saving Certificate (NSC), etc., where you will definitely get assured returns.

Also Read: Tax saving options

But when you compare ELSS with the other tax-saving scheme offered by the government, you will find that there is a lock-in period of 3 years in ELSS. whereas the other government schemes like PPF and NSC there is at least 5 years of the lock-in period.

Returns of the money invested in ELSS are very good when compared to any other tax-saving scheme proposed by the Government. I would like to say that in order to meet your long-term financial goal government tax saving schemes will fail, while ELSS is better and gives you handsome returns to reach your financial goals.

Yes, it is a different thing that investing in ELSS can be a little risky compared to tax-saving schemes operated by other governments because ELSS invests in the stock market, which is risky for a short time. Therefore, to invest in ELSS, you should make your mind for long-term investment, for example from 5 to 7 years. So that you will earn better returns in the ELSS.

It is supposed that ELSS has a risk, but you get a reward for taking risks. For instance, those who invest in ELSS in the last few years have been given tax-free returns of about 13.52 percent in three years and 17.29 percent in 5 years, and 9.83 percent in ten years. Which is much more than other government schemes.

Also Read: How to Invest in Mutual Fund

If you are having your interest in investing in ELSS then here are some of the following schemes which have given good returns in the last few years.

  • L&T Tax Advantage Fund
  • Aditya Birla Sun Life Tax Relief 96
  • DSP Black Rock Tax Saver Fund


If you want to invest in these ELSS Schemes, then I will suggest that you should invest under a Systematic Investment Plan (SIP) and invest for a minimum period of 5 years, or else the best option will be that you should invest in ELSS for the long term financial goal. So that returns will also be a better amount and risk will be significantly reduced. Last but not the least, invest in the market after reading and understanding all the risks involved.

ELSS Tax Saving Mutual Fund

ELSS Tax Saving Mutual Fund

Tax planning is one of the major tasks for some people. They were at various stages of tax planning at any point in the financial year.

Some people want to invest as soon as possible and some people are looking for a very good tax savings option and some people want to know about the best tax-saving mutual fund scheme.

So in today’s article, I am going to tell you about the same, that is ELSS.

What is ELSS Mutual Fund?

The Mutual Fund Scheme or Equity Linked Savings Scheme (ELSS) is a very good way to save tax under Section 80C. You can invest up to Rs.1.5 lakh to save income tax in ELSS equity under the above section mentioned. Like all the other tax-saving options that come under Section 80C, ELSS also has a lock period of 3 years.

If you are thinking of investing in ELSS, it will be better this year to save your income tax that you start investing right now. Apart from this, this option provides financial discipline and also you get a lot of time to discuss in which scheme of ELSS you should invest.

Also Read: What is SIP

How can you invest in ELSS Mutual Fund?

Just go to the company website where you can invest in a lump sum or you do not have to do more than just have to start a systematic investment plan that is SIP in ELSS Tax Saving Mutual Fund Scheme. As soon as you start a twelve-month SIP, your money is automatically invested every month in the tax-saving scheme.

Also Read: How to Invest in Mutual Fund?

Is there any risk in investment in ELSS?

ELSS scheme is a type of equity mutual fund scheme that invests in the stock market. As we all know that the stock market is an unstable system that has fluctuations, so if you are ready to take the risk, then only you should invest in ELSS.

As mentioned, this scheme has a lock-in period of 3 years but I will suggest you if you have time for five to seven years only then you should invest in this scheme.

Most of the other tax-saving options offered by the government provide certain income, but the returns are very low. Investing in the stock market by ELSS is likely to get good returns in the long run.

What are the best ELSS Mutual Funds?

The following are the recommended ELSS in 2017 who have given a good performance in the last few years.

  • DSP Black Rock Tax Saver
  • Axis Long Term Equity Fund
  • Birla Sun Life Tax Relief Ninety Six
  • Franklin India Taxshield.

Also Read: Tax Saving Schemes in India


As it has been clearly said that “Mutual fund investment is subjected to market risk”. when some people heard this sentence they get feared but If you have researched well about the market and various scheme then you can earn good income in ELSS. But yes I will suggest you make enough research then and then only invest in any fund because we all know that money cannot be earned easily.

What Is SIP?

What Is SIP?

What is SIP (Systematic Investment Plan)?

For those who do not have much information about the stock market or share market, investing through SIP is a better way to reduce the risk of the investor. SIP is a method of investment and savings under which any investor keeps investing in a fixed amount in their shares or mutual fund. In simple words, it can be said that if you don’t have enough money to invest in one time then you can invest using SIP that enables you to move towards your goal monthly or for a fixed term. You can also invest in commodities like gold through SIP. SIP makes the investment easier and the investment continues in disciplined ways and also reduces the risk of investment.

SIP stands for the systematic investment plan. But I would like to call it a sort of investment plan. In an interval of equal time in SIP, an equal amount is invested in one item. An investor has Rs.50,000/- to invest and he does not want to invest them all on the same day due to risk factors. Now he can choose to invest in SIP for ten months at a rate of Rs.5,000/- per month that will also reduce the market risk for him.

Nowadays, Banks also offer SIP through a savings bank account. once you give them standing instructions they will continue deducting the SIP amount from your bank account directly and investing in the mutual fund on your behalf by their experts.

Features of SIP

  • Any investor can invest in the share market, mutual fund, or gold ETF through SIP.
  • Investment intervals can be kept per day, per week, or per month. This is an easy way of investing for salaried professionals.
  • Large investments can be made in a regular and disciplined manner by saving some salaries every month.
  • SIP can be started by giving an advance check-in to any mutual fund or giving online instructions.
  • SIP can also be made from a small amount of Rs 500 per month.

Benefits of SIP

1. Small investment
It is easy to save a small amount for investment. For a long time, the investment of a small amount can give you big returns.

2. Risk factors are less
Actually, when you invest a heavy amount at once and the market goes down then think about what will happen. SIP reduces such risks as the amount of money you save is not at one time.

3. Easy to invest.
As the investment in SIP can be done by directing online. On a fixed date the fixed amount is directly transferred to the mutual funds in which you have invested in your chosen plan.


At last from my point of view, If you want to invest in a share market or mutual fund, you should go further with SIP. Whether you have a heavy amount with you or a small amount to invest. The market is full of ups and downs. one wrong decision can cost you a big loss and one good decision can make you earn a lot. So it’s all about our own sense think and think once again before making any investment.

How To Invest In Mutual Fund?

How To Invest In Mutual Fund?

Nowadays our television screens are flooded with mutual fund advertisements. Everybody wants to know about it. As I have discussed the mutual fund in my recent article about what is a mutual fund and its type. Today I am going to discuss various points about how to purchase a mutual fund and how to invest in mutual funds. Where to buy mutual funds. It should be brought online or offline, which is the formalities that have to be completed and all.

How to buy a mutual fund?

This will be the very first question that will arise in your mind that how to buy a mutual fund? Mutual funds can be bought both offline and online. There is various companies available in the market from where you can purchase a mutual fund. All you have to do is before investing in a mutual fund, you should thoroughly research and decide which asset management company to invest in a mutual fund scheme.

Examine different types of mutual funds, their investment objective, and past performance. However, the previous performance cannot be guaranteed that in the future, any mutual fund scheme will perform as it has performed earlier. But yes the chances are less of degradation of performance chart.

Now there are various ways to purchase a mutual fund.

1. Online purchase:
To invest online in a mutual fund, you can invest online by going to the site of a mutual fund asset management company. The names and web addresses of mutual fund asset management companies you can found on the search engine or visit SEBI.

2. Offline purchase:
You can use the services of a financial intermediary to make an offline investment in a mutual fund. These are called mutual fund distributors. You can invest in mutual funds directly by going to the office of the mutual fund company. A bank, non-banking finance company, or personal financial advisor can be a mutual fund distributor.

3. If you have a Demat account with a broker, you can also buy a mutual fund from that broker. In this way, the mutual fund purchased will be deposited directly into your Demat account.

Note: Whether you buy offline or online mutual funds, you can also order a SIP purchase in your form. For this, you can also give your bank details and ask for an automatic purchase.

Formalities for buying mutual funds:
In order to purchase a mutual fund, you will have to fill out a KYC form and provide a passport size photograph along with proof of identity and a copy of the residence address.

Also Read: ULIP vs Mutual Fund


Purchasing a mutual fund is not a big task but finding the best place for investing your saving for a better return is a tricky game. Mutual fund investment is really good and can be proved to be the best place for all types of investors. Put a habit of investment from today and see your future dreams come true. Small investments made in mutual funds can be a huge amount for one day.

Disclaimer: Mutual fund investments are subject to market risk, please read the offer document carefully.