CHIT FUNDS OR CHEAT FUNDS ??
Res Sirs,
I had gone thru the details below and I appreciate you for the details, but I had some doubts.
Why a chit fund is not publishing theinvestor return in a chit(same type) completed when a new chit(y) is floated just like in mutual funds which is mandatory as per SEBI rules. Mutual funds should furnish the investor return given to a investor in the past yearly, 2years,3years may be from inception.
Chit funds can also declare that our last (justcompleted) chit of 100*1000(or any type) had given investors an average return of so and so,why they are not publishing? because if they publish that will bedeath-bellof CHIT(Y),because the fact is that chits gives nothing to investors (not for borrowers and everybody is not borrowers)most probably negative returns tomajority.
One of my friend had told me a story why chits and this money business in kerala isconcentrated in Trichur, I am not sure is it true it is upto you. On pathetic situation of Trichur town then Maharaja Sakthan Thampuran invited christiantradersfrom south to start business in Trichur for theprogress of town, the traders asked for financial help of Rs 100/-for starting the same and the king replied He have no huge funds to spare,subsequentlyfloated an idea .
He asked them toassemble on a particular dayand everybody should put one rupee and a lot will be taken and winning person will get the full amount " I DONT NEED ANY THING " everybody should attend till the end, all are happy and started the CHITTY ,I am not sure this is genuine or not.
Think today`s chits manifesto,COME TO ME(KSFE) PUT YOUR HARD EARNED MONEY EVERY MONTH I WILL TAKE A LUPSUM(commission anddocumentarycosts) AND BALANCE WILL BE given to you.This is happening in today`s chits.
In your example you had not told what a investor who is not willing to take back, and joined for long term investment .
In case of a KSFE or registered chits borrowers are very less and and deduction is very less, mostly after 5 lots there will no reduction that means everybody wants to remit the full amount.
Reduction is not assured ,you get reduction if there is persons to put a call,so it can not be expected ,and investments should not be done on assumptions.
Think a persons joins a chit as a investment of 100*1000=100,000
by the 100th month he had put 100000/- and what he will get, which is only the assured (all othres 1 to 99 is a chance not a choice) 100000-5% commission that is 95000/- is it a good investment? please think,
don`t compare with those lucky fellows who get the first few lots and many of the chits if you get the money back you are theluckiest fellow on Earth.(HIMALAYA,St MARY`S).
For bank deposits banks are giving 10.5%(current rate) for long term ,ie for a 100 lot chit your firstinstallmentis lying for 100/12= 8.33 years,that means a Rs 1000/- will fetch (1000*10.5/100) Rs 105 per year and for 8.33 years it will be 105*8.33=874
and just calculate for the full period I am not so good in such a calculation.
And if you put this 1000 in post office monthly recurring for 6 years (60 months)you will get 72000/-
after completion and this is the most secured and assured investment in INDIA ,if you put 100 000 in 6 years you will get 120,000/- which is better option and installment can be started with as little as Rs 10/- for 60 months you will get Rs 720/- on completion.
Don`t fool people by telling them about all will get very high returns educate them while parking their hard earned money.
Years back I had read in a malayalam magazine that the returns from various investments you can come to your ownconclusions.
1. Chits or Kuries NEGATIVE to 1%
2. Insurance policies 2 to 3%(one should haveat least 1or 2 policies not more)
3. S/B A/Cs 4 to 4.5% (years back)
4. Fixed Deposits 7 to 8.5%
5. Post office recurring (PoRD) 8.5%(compounding)
6.Post office MIS 8.5%(compounding)
7.PoRD with MIS income 12.5% (with 10% bonus at that time,now it is abolished)
8.Equity funds(mutual funds) 14% to 18% ,Be caution it is a risky investment, income is not assured and fluctuates according to SHARE MARKET and(now it is greatopportunity to start investing in mutual funds as share markets is at very low level,takenecessary precautions)
9 .Shares 20 to 25% not assured ,highest risk , and think twice study well, now very good opportunity for long term in good shares
If you don`t agree with me please forgive and simply avoid.
thanking you,
rgds,
Babu Davis.A
MERRY CHRISTUMAS
From: P Nair <pnair1966@yahoo.com>
To: Keralites <Keralites@yahoogroups.com>
Sent: Thursday, 22 December 2011 10:50 AM
Subject: [www.keralites.net] All about Chit Funds
Chit funds are the Indian equivalent of the Rotating Savings and Credit Associations (ROSCA) that are famous throughout the world. ROSCAs are a means to "save and borrow" simultaneously. It is considered one of the best instruments to cater to the needs of the poor. It enables poor people to convert their small savings into lump sums. The concept of chit funds originated more than 1000 years ago. Initially it was in the form of an informal association of traders and households within communities, wherein the members contributed some money in return for an accumulated sum at the end of the tenure. However, in recent times, there have been tremendous alterations in the constitution and functioning of Chit funds.
- Union Government – Chit Funds Act 1982 (Except the State of Jammu and Kashmir)
- Kerala – Kerala Chitties Act 1975
- Tamil Nadu – Tamil Nadu Chit Funds Act, 1961
- Karnataka: The Chit Funds (Karnataka) Rules, 1983
- Andhra Pradesh – The Andhra Pradesh Chit Funds Act, 1971
- New Delhi- The Chit Funds Act,1982 and Delhi Chit Funds Rules, 2007
- Maharashtra – Maharashtra Chit Fund Act 1975
- Uttar Pradesh: Uttar Pradesh Chit Funds Act, 1975
- Goa, Daman & Diu: The Goa, Daman and Diu Chit Funds Act, 1973
- Pudducherry: The Pondicherry Chit Funds Act, 1966
Who Conducts a Chitty?
A Chitty is conducted by a person or an institution and this entity is called the foreman
How many tickets can be enrolled in each chitty?
The number of tickets enrolling in a chitty will be equal to the number of months for which the remittance
have to be made or the duration of chitty in months.
What is Chitty "Prize Money"?
The total of the periodic subscription, called the chitty amount, will be given out as "prize money" to the person who bids by allowing for the maximum reduction in the prize money. The maximum reduction possible is 25% as per the prevailing Chitty Act and if there are more than one subscriber interested in bidding at 25% reduction, the numbers of the such bidders will be put to a draw. Thus each subscriber gets an opportunity to receive the prize money once during the tenure of the chitty. All the promoters have to contribute the periodic subscription till the end of the chitty. The first installment is normally for the promoter, and that is his seed capital. From the second month onwards the total sum will be auctioned among the members. Those who are in urgent requirement of money take part in the auction. The person who is willing to accept the least amount is given preference.
Foreman's Commission
The foreman is entitled to a certain percentage of the chitty amount (not more than 5% of the chitty amount) as his commission from each member
What are the Securities Acceptable for Payment of Prize Money?
The types of security acceptable for chitty prize money payment, belong to various categories like personal sureties (of employees of Government, aided schools, public undertakings, banks etc.), financial documents (like fixed deposits with banks and reputed organizations, Deposit-in-Trust, LIC policies, bank guarantees, National Savings Certificates etc.), landed property or Gold ornaments etc.
Bidding Thump Rule: -
No:1 - As a borrower
Bid the chitty at the maximum rate, since cost of chitty is always much less than the borrowing cost.
In case you want to take personal loan from the bank or financial institutions, you need to pay annual interest in the range of 15-20%. But in case of chit funds the cost of money borrowed is much less than the bank loans and more over it is easy and convenient.
No.2 -As an Investor
In the continuous bidding process, if the discount foregone/available on each month is less than or equal to the proportionate of the gross /maximum discount for the month, bid the ticket immediately and invest the proceeds in high interest paying deposits.
Tips :-
I. Per unit (in % terms) of discount foregone correspond to interest earned on the prize money should be arrived to maximize the return from chitty.
II. Discount forgone in auction should be suitably compensated with the interest/return earned by prize money receipt during the course of the chitty.
See the following example
Ex : Mr. X enrolled for a chitty for a total value (sala) of Rs. 1,00,000.00 for period of 50 months and Rs. 2,000.00 pm as installments.
i) If the chitty is auctioned at the 14th month \ installment at a total discount of 10%. prize money payable is 1,00,000-10,000= Rs 90,000.00
ii) Interest accrued on price money deposit for the balance period of (50-14) = 36 months @ 9.5%.
Therefore total interest for Rs 90,000 @ 9.5%(compounded Annually) for 36 months is = Rs 28,164.00
Total prize money received Rs 90,000.00
Total receipt/ inflow from chitty = 28,164.00+ 90,000.00 = Rs 1,18,164.00
iii) If the total dividend earned is Rs 6,000 during the entire chitty period,
The net outflow of the chitty payment is Rs1,00,000 – 6,000 = Rs 94,000.
IV) Net Surplus in chitty Rs 1, 18,164.00 – 94,000 = Rs. 24,164.00
Note : above calculation is without considering the Forman's commission
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