Chit Fund Calculator


Table of Contents:

  1. Definition of Chit Funds
  2. How Chit Funds Work – An Example
  3. Calculation of Chit Dividend
  4. Chit Fund Regulations
  5. Advantages of Investing in Chit Funds
  6. Risks Associated with Chit Funds
  7. Tax Implications of Investing in Chit Funds
  8. Chit Funds vs Other Investment Options
    1.    8.1 Chit Funds vs Mutual Funds
    2.    8.2 Chit Funds vs Nidhi Company
  9. Frequently Asked Questions about Chit Funds (FAQs)

What are chit funds and how do they work?

Definition of chit funds

According to Section 2(b) of the Chit Fund Act 1982; A chit fund is a type of rotating savings and agreement among different persons i.e. friends, relatives, neighbours and family members to subscribe a certain sum of money for a specified period of time. They are basically microfinance organizations. These are also called the Kuree,chitty, chit.

How chit funds works with example

We will take of 10000 Chit format for 10 months. So let’s assume there are 10 people who form a group in which each one will contribute Rs 10,000 per month for next 10 months (i.e. equal to number of people in the group). One out of these 10 will be the organiser of the group, He/she will do the administrative work like collection of money, fixing the meetings etc.


So each month these 10 people will meet and contribute Rs.100,000 in total(i.e.10*10000). Now few people who are  in need of money for any reason, will bid for this 100000. The one whose bid is lowest will win the amount. Suppose out of total 3 people who bid for 90,000, 85,000 and Rs 80,000, In this case the person who bid for 80000 will win.


Now since the organiser is working for the group, he/she will charge some amount for the service generally these 5% of the total fund amount which in this comes to 5% * 100000 = Rs.5000, The will be deducted from the winning amount of the chit fund winner of the month and he/she will get a net amount 80000 -5000 = 75000. The chit surplus will be 100000 – 80000 = 20000. This amount will then be distributed among the chit fund group members (all 10 members).


Each member will get 20000/10 = Rs 2000. So the winners has to bear a huge cost for his/her winning. And the rest 19 members actually paid 10000 -2000 = 8000 each. One point to be noted here that the person who wins the bid cannot bid in next month’s meeting i.e. only 9 people will be able to bid next month.

How to calculate Chit dividend?

The chit dividend is nothing but the chit surplus that we calculated above. It can be expressed by the following formula.

Chit Dividend = Total fund amount – winner’s Bid

Similarly in next month if the best bid or the lowest bid is let say 90000 then the winner will get 85000 then the chit dividend 100000 – 90000 = 10000 will be divided among the members and each one will get 1000. And this person will not be able to bid next month so this at 10th month the last left person will get full amount after deducting the chit fees or charges which comes to around 100000 – 5000= 95000.

Chit fund regulations

The government appoints a chit registrar under section 61 of Chit Fund Act 1982. This registrar and the respective state government are responsible for taking actions.


Advantages of investing in chit funds

Chit fund is a good system for those people who are uncertain about their future cashflows and those who can’t get loan from the bank. It can support them in times of need. So it’s a good microfinance tool.


Risks associated with chit funds

The big question is “are chit funds good investment?” The answer is simple chit funds are not an investment instrument they just support the financing need like I explained earlier. There are people who will say that you can double your in few months with  chit fund, Beware, they are Frauds and scammers chit fund can’t double your money even they don’t even provide good returns to the participants those fancy 40 or 50% returns are just earned by the organisers(you can see it in this excel sheet or in our calculator).


                             >>>>>>Excel download link<<<<<<<<<<

There are many companies who promised people good returns but then ran away with their money. You should put your money in chit funds only if you want to use it as a financial support system and that too you should form the fund with the people you trust like your friends and colleagues.

You must have seen your father, mother or any relative to form chit fund with their friends to whom their would last longer.

Tax implications of investing in chit funds

The Chit dividend is taxable under section 56 of Income Tax under income for other sources.

Chit funds vs other investment options

Chit funds vs mutual funds

Chit funds are basically microfinance tool while mutual funds are investment and saving vehicle.

Mutual funds are regulated by SEBI while Chit funds are regulated by registrar of chit funds.

Mutual funds can help grow your money with medium to high return while in chit funds are higher only for organisers but for the members it is very low.

Both are taxable.

Mutual funds can give compounded interest return while there no such case in Chit fund

Chit fund vs Nidhi company

Chit fund is a group where the members deposit some amount In instalments and one person gets the big amount where as in Nidhi company is an NBFC who accepts deposits and lend money. Chit fund is governed under chit fund act 1982. Whereas Nidhi company are governed under 406 of companies act 2013.


Frequently asked questions about chit funds(FAQs)

  • What is the minimum investment amount for chit funds?
    • It Depends on fund to fund, some require minimum of 5000 while other require 100000.
  • Is chit fund legal or illegal?
    • Yes chit funds are legal they are governed by chit funds Act 1982
  • Is chit fund a good investment?
    • Chit fund is not an investment tool it is a financing tool where you use to raise money when needed.
  • Is chitty better than FD?
    • For members No, as the returns are sometimes lower then FD interest while for organiser it is definitely a better than FD, Mutual fund or even shares.
  • What are three best chit funds in India.
    • Following are top funds based on “INTERNET”

Margadarsi Chit Fund

Shriram Chits

Government of Kerala Linked Chitty

Mysore Sales International

Purasawalkam Santhatha Sanga Nidhi Limited

Guru Nanak Chit Fund

I would strongly recommend doing your research on these.

  • How do save yourselves from Scam?
    • I would say form a chit fund with your trusted ones or if you want to invest in schemes read the terms and conditions carefully go to their website check their background.

Leave a Reply

Your email address will not be published. Required fields are marked *