A chit fund is a financial system where a group of individuals regularly contribute money to create a fund. Periodically, one member is chosen to receive a lump sum amount from this fund. The selection is either through an auction or a predetermined process. Until everyone has earned their fair portion, this process continues.
Chit funds serve as a savings and borrowing platform, especially prevalent in India, offering an alternative to formal credit systems. Compliance with legal regulations is vital to ensure its proper functioning and prevent misuse.
Chit funds are a financial tool encompassing borrowing and saving. A group of participants contributes a set amount regularly, forming a collective fund. Each period, one member, determined by auction or lottery, receives the total sum. This cycle repeats until each member benefits. It offers a unique blend of savings and loan services, fostering financial discipline and providing members access to funds when needed. The system promotes community collaboration and financial security, making it a popular choice for small-scale investments and financial planning.
