Should you choose Chit Funds over Mutual Funds?

When it comes to compounding your finances, the opportunities this world provides are endless. There are a plethora of financial tools, institutions and markets that are present to bolster your personal finances. 

Here, we are going to explore two such financial tools that you must already be familiar with – Chits Funds & Mutual Funds. Let’s understand how they differ from each other:

The Key Difference

A Chit Fund is the quintessential dual financial tool as it helps you with saving and borrowing. Flexibility is in the fabric of this tool, as chit funds are about investing/saving a small amount of your income periodically. This in turn creates a pool of money you can borrow from or you can continue saving in, to accrue interest at the end of the term period. 

Whereas, mutual funds are about essentially investing in the stock market. But instead of investing the entire amount in the stocks of one particular company, mutual funds benefit you with the offering of investing your money on your behalf in several entities to reduce the possibility of risk. It is crafted according to the age-old adage – “Don’t put all your eggs in one basket.” Mutual Funds are long-term investments that are linked directly to market performance. As it’s a volatile investment, you are at the risk of losing your money or at the fortune of compounding your investment. 

While Chit Funds are essentially a savings & borrowings tool, Mutual Funds are a savings & investment tool. While the Chit Fund Market is consistent & safe to invest in, the Stock Market is on the other end of the spectrum.

Fund Performance

While you invest repeatedly in a chit fund and accrue a set amount of dividends every month along with 10% interest annually, Mutual Funds do not offer a pre-determined value of interest or gains. It entirely depends on one’s shrewd ability to sell/buy stocks at the right time. Hence, this implies that the Chit Fund Market is a fluctuation-free market as you are investing in a pool of your own savings and borrowing from your future self. But when it comes to mutual funds, as the value of stocks and shares depends on the market performance, it can be a dicey investment; there is no guarantee of you receiving you principal amount or even making profits.

Regulations

With respect to Government Regulations, Mutual Funds are controlled and maintained by SEBI whereas Chit Funds are registered & regulated by State Governments & monitored by the respective Registrar of Chits. 

As you can sense, handling mutual funds requires thorough analysis and a certain amount of experience and expertise, whereas chit funds are more organic in nature. When you invest in a safe & registered Chit Fund like myPaisaa, you can even choose the goal or the intent with which you are investing. And the chit fund will sustainably enable you to fulfill your goal without the hassle of paperwork, countless hours of analysis, by ensuring your money is invested in a safe, controlled & risk-free market.