Chit Fund Loans

Chits (vs) Fixed deposit

A Fixed deposit is accepted for a pre-determined time period. Interest paid by banks range between 7.5-9.5% and is dependent on government regulation. The interest earned from fixed deposits can either be taken out periodically (monthly/quarterly/half yearly/yearly) or an investor can earn cumulative interest which is paid at the end of the term period. Fixed deposits offered by corporate sector carry a higher rate of interest but are risky and an investor will have to take an informed decision. A fixed deposit is illiquid.

The principle amount cannot be used by the investor, if he has to incur any unforeseen expenditure. If the investor opts for a cumulative interest group, the entire amount is returned only on maturity of the fixed deposit.A chit on the other hand can help an investor by paying him an interest rate between 12-16%. The interest is paid in the form of dividend. If an investor has lump sum amount, he can invest the same in a vacant chit. By investing in a vacant chit, the waiting period is shorter; the investor can participate in an auction and use those funds for any planned or unplanned expenditure or wait until the end of the chit and enjoy higher dividends.