A Complete Guide to Investing in Chit Funds

A Complete Guide to Investing in Chit Funds

A chit fund or chit fund scheme is a kind of savings scheme practiced in India. It is basically a rotating scheme in which a group of people contribute an amount of money, and whose corpus is given to one individual at a time.

This person or member can either be the person who is chosen through a lottery system or auction. The chit fund was started to ensure that people could save money and use it when they needed it.

There are several benefits of investing in chit fund schemes, which make them one of the best ways to secure your future. The benefits of investing in chit funds include:

  1. High liquidity

    Chit funds have high liquidity because they can be withdrawn at any point of time. The participant can choose to withdraw from the fund at any point of time and close the account if he wishes to do so.
  2. Low risk

    Chit fund companies are regulated by the government and hence, they are considered a safe investment avenue. 
  3. Long-term savings

    Even though chit funds are predominantly used for short-term investments, they can also be used by people who want to save money for a long period.
  4. Provides financial aid in case of emergencies:

    By investing in a chit fund scheme, a member can get access to quick money in case of an emergency or any unforeseen occurrence. This is one of the biggest benefits of chit funds. 
  5. Helpful during asset purchase:

    For people who are planning to buy assets like homes and vehicles, a fast-maturing chit fund scheme provides much-needed financial assistance at the right time. 
  6. Good returns:

    On average, you can expect a return rate between 12-15% per year when you invest in a good chit fund company. 

So, what is the process of chit funds? 

  1. In a chit fund scheme, a group of people contribute to the chit value on a regular basis for a period of time (in months) that is equal to the number of investors.
  2. Every month, the money is distributed to the individual who is chosen through a lottery system or an auction. In the auction allotment procedure, the person who bids the lowest or, in other words, who agrees to claim the lowest amount, wins the money.
  3. After deducting the organizer's charges, the sum foregone by the bidder is allocated equally among the other members. This amount is called a dividend. Even after receiving the winning bid, the successful bidder must continue to invest. 

There are various types of chit funds available:

  1. State-run chit funds:

    These are the best type of chit funds as they are managed by state governments and come under their jurisdiction. With state-owned chit funds, you can be more confident knowing that there is less risk of losses.

    Some of the examples of state-run chit funds are Mysore Sales International Limited (MSIL) and Kerala State Financial Enterprises (KSFE). 

  2. Registered chit funds:

    These funds are registered under the Chit Fund Act of 1982. They are usually managed by private companies or individuals. These are regarded as safe since they are governed by a legal framework, and so the risk is entirely minimized. 
  3. Unregistered chit funds:

    These funds do not come under the purview of the Chit Fund Act. They have not been registered with any governing body and are not regulated by the government either.

    This sort of chit fund is run by a group of friends, relatives, peers, or coworkers. These are often formed by groups of people who are familiar with one another and there is often an element of risk involved because the investments are unregulated.

  4. Online chit funds:

    Chit funds are being organized online as well, thanks to the growth of e-commerce. Contributors can make monthly contributions and get prizes through online transactions, such as the electronic funds transfer system, with online chit funds. To administer and circulate chit funds, each member receives their own online account.


Chit funds are a good means of saving money. It’s quick, easy, and convenient—making it ideal for those who want to save money without making a long-term commitment. In addition, there are various chit fund schemes involving small payments. This makes them affordable to nearly anyone.

Registered chit funds like Navachethana chits offer competitive interest rates and have a low risk-level, making it a great source of future funding—especially during emergencies.