CHIT FUND VS MUTUAL FUND
- CHIT FUND VS MUTUAL FUND
Saving money is the most fundamental and responsible thing to do, and its significance is rarely contested.
Saving money is one of the best financial habits to develop because it offers so many advantages. Chit Fund vs Mutual Funds is a couple of the more well-known products available on the market that can help you save money.
Both mutual funds and chit funds operate under the premise of allowing investors to combine their funds over a specific period. The usage of money is where the distinction resides, though.
The money is invested in stocks and bonds when it comes to mutual funds. Additionally, chit funds lend money, and the interest they earn is split equally among all subscribers.
Let’s examine chit funds vs. mutual funds in more detail.
Chit Funds vs Mutual Funds
Chit funds borrow money from investors’ pools and then lend it to those in need, which is how they vary from mutual funds. Each subscriber receives an equal share of the revenue collected. On the other hand, mutual funds combine money from various investors and utilise it to invest in various securities. Chit funds are saving, borrowing, and investment instruments, whereas mutual funds are primarily saving and investment tools.
The differences between these two financial products are clearly shown in this table.
CHIT FUND MUTUAL | MUTUAL FUNDS | |
What is it? | A group of people band together to contribute a predetermined sum for a specific period in a community finance arrangement known as a “chit fund.” Each participant can claim the pool sum through an auction or a lot system. | This professionally managed investment plan brings a group of people together, which invests their funds in stocks, bonds, and other securities. |
Purpose | Essentially a tool for borrowing and saving | Essentially a tool for borrowing and saving |
Growth Opportunity | Doesn’t provide you many chances to grow your money | Provides incredible potential for financial growth. |
Procedure | Simple process because there is no paperwork or documentation needed | An considerable amount of documentation is required |
Government Regulations | Under Section 61 of the Chit Funds Act of 1982, which was appointed by the individual state governments, are governed. | SEBI regulates and maintains market |
Market Risks and Volatility | Lacking market exposure means that there is no market risk. | Mutual funds invest in the incredibly uncertain market. Your funds’ value decreases together with the market’s value when it does. So incredibly vulnerable to market risk |
Fees | Managed by the event’s organiser for a commission of 5% or more | Managed by the asset firm for a yearly charge that may be as high as 3% or 2% |
Product Understanding | It’s easy to grasp and simple. | Need more knowledge to comprehend |
Ability to borrow | Can obtain loans with low interest rates | No such options available |
Principal guarantee | The principal is secured. | There is a chance of losing the initial investment. |
Benefits of Investing in Chit Funds vs Mutual Funds
- Easy access to money- People who want to borrow money can get it when they need it to cover any unplanned or scheduled expenses.
- Low-interest rate- It is possible to borrow money with less interest.
- Good dividend income- Dividends offer appealing interest rates that are substantially greater than bank fixed deposits for people who want to save money.
- Safe investment- The Chit Fund Act of 1982 governs this.
- Easy repayment option- Borrowed funds may be repaid over time in regular instalments.
- Simple procedure- No intricate procedures or protracted documentation are required.