HYDERABAD: Chits have been a popular source of savings for a majority of Indians. With their easy-to-invest-and-withdraw approach and literally no-frills way to join, chit funds have been able to attract people of all ages and purposes. However, chit funds in India have also been notorious for duping investors.
But in these days, where several formal investment avenues have sprang up, are chit funds still relevant and promise better returns?
According to several financial analysts and experts Express spoke to, it was found that chits are still a popular source for several people and businessmen, especially in the unorganised sector. But they may not be a suitable option for the new age salaried class and entrepreneurs who have enough opportunities to borrow, save and invest in the organised banking and financial avenues.
“One attractive feature of chits is anyone can join them and no documents are needed in a majority of cases, unlike in other formal channels. Also, most of the chits in India are run by unorganised players. Even organised players do not insist on conditions or documents from investors. Therefore, chit funds have been the sole or the last resort for many people in the unorganised sector, who are generally overlooked by banks and other formal sources. The ease of operation and need ensure that chits survive in every nook and corner of the country, in spite of several frauds. Investing in chits being risky, one can avoid it if they have other sources to save and invest,” says Subba Rao Anupindi, a senior CA and financial planner.
Chit funds provide an opportunity to withdraw at a later date a lump sum amount by paying in small monthly installments or loan a big amount at an earlier date, to be paid in small EMIs over a future period. In today’s financial world, where several investment opportunities like SIPs, MFs, stocks, FDs and others have sprang up and banks and NBFCs are bombarding customers and borrowers with personal, vehicle and home loans, chit funds seems to have lost their edge.
“Today, most of the banking and financial transactions are done online. A majority of salaried class and entrepreneurs comply with KYC norms, have Aadhar and PAN card, and CIBIL scores. As a result, they get personal loans without much difficulty in times of need. Also, as the financial literacy is rising, young investors are looking towards formal avenues like stock market, MFs and others. Even by modest estimates, MFs are less risky and provide good returns. Therefore, unless one runs out of all sources, they need not opt for chits, which are risky and does not guarantee much returns,” said financial adviser VVK Prasad who runs financial services consultancy Vivekam.