How do you explain chit fund?
A chit fund is both a savings and credit product. It bears a pre-determined value and is of a fixed duration, mostly two to three years. Each scheme admits a specific number of members whose monthly contributions adds up to the total value of the chit fund at the end of the term.
How do chit funds make money?
The money is collected from the chit group and is put up for auction every month. The investor who bids the lowest for the total sum will win the lot. A commission has to be paid to the Chit Fund Company. The surplus is distributed to all other investors.
How can I start a chit fund business?
Steps to Register:
- Apply for Digital Signature Certificate (DSC) and Director Identification Number (DIN)
- Apply for Name endorsement of Chit Fund Company.
- Set up Reports as per Chit Fund Company goals.
- Least Capital Requirement for Chit Fund Company.
- Apply for Chit Fund Company enrollment.
How does Shriram chit fund work?
The Pooled funds every month are offered to the subscribers at monthly AUCTIONS and the subscriber who BIDS for the highest DISCOUNT is declared the PRIZE WINNER and given the PRIZE AMOUNT on proper security. A Prized subscriber also should continue to pay the subscriptions till the termination of the chit.
Is chit fund a crime in India?
Chit funds are legal in a majority of states and UTs in India. Chit fund companies in India are under the Chit Fund Act, 1982. Since chit funds are not financial companies, they are not regulated by the rules or guidelines of the RBI.
How does chit fund work with example?
How Do Chit Funds Work? In a chit fund scheme, a group of people contribute periodically towards the chit value for a duration equal to the number of investors (members or subscribers). The amount collected is given to the person, who is either selected through a lucky draw (lottery system) or an auction.
What is the interest rate on chit fund?
The annualised interest rate works out to 22%. Despite these shortcomings, investors flock to chit funds in large numbers. This is because the option offers tremendous flexibility to the member. He can treat it as a recurring deposit till he needs the money, just like an overdraft facility with a bank.
Is income from chit fund taxable?
Tax on Income from Chit Funds Section 56 of the Income Tax Act states that if income of any kind is not exempt from tax but is not chargeable under any of the heads specified – salary, house property, business and capital gains – then, such income is to be included under the head income from other sources (IFOS).
What is the difference between a chit fund and a mutual fund?
The comparison between mutual funds and chit funds are as follows-. Both mutual funds and chit funds have their investors pool their money. In case of mutual funds, this money is invested in stocks/bonds. Chit funds, on the other hand, use it to lend money and the income is equally divided among all subscribers.
Are chit funds good to invest in?
Chit funds are not necessarily a bad investment. It has a bad reputation because it has been misused in the past to scam naive investors. There are Government-run and registered chit funds that are safe to invest in. On the other hand, recurring deposit are a much safer investment.
Does chit fund need registration?
As chit fund is a risky investment you should take following precautions before investing in a chit fund. A chit fund should be registered. Check the certificate of incorporation from the registrar or the companies. Check the certificate and registration number issued by registrar of chit funds of state in which the chit operates.
How does chit fund work?
HOW CHIT FUNDS WORK. The investor pays an amount at specific intervals, usually a month, up to a fixed period. The money goes into a common fund. The amount collected is given to one person, usually selected in a lucky draw.
