Chit Fund Vs Fixed Deposit: Do You Know You Are Losing Money in FDs?

chitfund vs FD

Earn 3 To 4 Times More Than Bank Fixed Deposits 

We recently came across an article, “Bank Deposit Rates Set to Fall in New Fiscal”, published by The Economic Times, and this made us realise that our FDs are actually losing our money!

The value of ₹ 100 deposited with a bank for one year in an FD carrying 6.90% interest (offered by SBI in April 2017) would fetch ₹ 6.90 towards annual interest.

But due to inflation, the real value of this would have fallen by ↓8.56%. (If inflation rate=8.56%)

That means the real value of the deposit of ₹ 100 has fallen to Rs 98.34 (8.56% – 6.90% = 1.66%)

Many people who invest in FDs do not even know that they should consider inflation, interest rates and taxation before zeroing on an investment decision. So instead of gaining money from their investment, they end up losing it.

Now, you might be thinking – “If bank Fixed Deposits are not a good place to put my money to work, how else should I be saving my money, smartly?”

We would say, invest in Chit Fund with The Money Club! You would be surprised to know that people have already earned more than 12-15% returns (annualised) on their savings in this innovative savings model.

Borrow Money Hassle Free In Times Of Need  

What Is a Chit Fund?

chit fund is a rotating saving scheme, also known as chitty, chit or kuree. It is an excellent financial instrument that serves as a savings as well as a borrowing tool. As a saving scheme, the chit fund offers good returns on investment. As a borrowing tool, it serves as a reliable source of funds in emergencies or whenever the need for money arises.

In a chit fund scheme, a group of people come together to contribute a fixed amount of money every month of a fixed period.

How Chit Funds Help?

  • Chit Funds have the advantage of both saving and investment. You can easily borrow the money in an emergency or continue as an investment.
  • The money borrowed is against your own future contributions.
  • The chit fund interest rate is 3-4 times more than the returns from bank FDs and RDs.
  • Borrowing from banksrequires you to fill up long forms and deposit piles of paperwork. In case of chit funds there is no paperwork required to borrow your money. You just have to participate in the bid.
  • Chit funds can be used for personal needs like marriages, religious functions, medical expenses, children’s education, etc.
  • The borrowing rate is determined by the participants and not any external agency. Usually the rate can be much lower than the banks

Join  2,70,000+ active members in the Money Club community

How Chit Funds work?

Chit fund is a unique saving cum borrowing instrument when compared to other financial systems. When you invest in chits you get more return as compared to other financial investments and when you need to borrow you pay less interest. You can save money from your salary every month and invest in chit funds.

In a chit fund scheme, members come together to invest a fixed sum every month. The money is collected every month and put up for auction. The member who bids the lowest for the total sum wins the lot. A commission is paid to the Chit Fund Company. The surplus is distributed to all other members. The winner of the bid cannot bid again. The amount you win becomes a loan that you will repay through the rest of the tenure. On the other hand, if you do not bid, then it becomes like a recurring deposit and you will receive your investment at the end of the chit fund. Your returns depend on the distributable surplus every month.

Let us understand through an example. Say 20 members invest in a chit fund for 12 months paying Rs. 1,000 each. In the first month, the total fund is Rs. 20,000. Suppose the lowest bid goes at Rs. 17,000. Rs. 1,000 (5% of the chit value) is paid to the organiser. The remaining Rs. 2,000 will be distributed among 20 members amounting to Rs. 100. So for the first month, the members actually contributed only Rs. 900 to the chit fund. This process repeats through the tenure of the chit fund.

चिट फंड क्या है और यह कैसे काम करता है? हिंदी में पढ़े

The Money Club - an Online Chit Fund Platform

The Money Club, an AI-driven chit fund platform, has transformed the way chit fund is conducted in India. It is a company founded by ex IIT, INSEAD and UCLA alums to create a platform where 1 million people can join Money Clubs with other like-minded people to Save, Invest or Borrow money. The Money Club provides very attractive investment options for all classes of people including salaried class, professionals, businessmen and self employed.

Know How Does The Money Club App Work So That You Can Start Earning Money

We are proud to be recognized as a trustworthy organization and we will continue to give service to all our subscribers in the same manner. The Money Club community trusts us to take care of their hard-earned money. They realize and believe that they can bank on us when in urgent need of funds for any purpose, be it Marriage, Education, Medical, Travel etc. 

We currently have more than 2,70,000 satisfied customers and formed more than 46,000 groups or clubs. With over more than 1 million transactions so far, we are the most preferred online chit fund platform to start your savings journey with!

What Is a Fixed Deposit?

fixed deposit (FD) or a term deposit is a financial instrument offered by banks which gives investors a higher interest rate than regular savings account until the maturity date. FDs promise the investor a fixed rate of interest, and in return, the investor agrees to not withdraw or access their funds for a fixed period of time. In a fixed deposit, the interest is only paid at the very end of the investment period.

Interest paid by banks ranges between 3%-6% and is dependent on government regulation. Fixed deposits offered by NBFCs and other financial institutions earn a higher rate of interest but their reliability must be carefully examined. A fixed deposit is illiquid. The principal 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. However if you want to break the FD before it matures, you have to pay a heavy fine for the closure of the FD. 

Want to know 12 Best investment alternatives in India?

Advantages of Fixed Deposit

Some of the advantages of Fixed Deposits are mentioned below:

  • Returns on your fixed deposits are not affected by market risks.
  • RBI insures your deposits for up to Rs.1 lakh.
  • In case of an emergency, you can avail loans of up to 90% of your deposit amount at very low interest rates. This is usually about 2% more than the FD interest rate.
  • You can withdraw or break your FD if you need funds urgently. However, you must avoid breaking your FD as you will not only get a reduced rate of interest but you will also have to pay the penalty.
  • You can get the amount of interest as per your requirements on a monthly, quarterly, or annual basis.
  • Investing in tax-saving fixed deposits will fetch you tax deductions of up to Rs.1.5 lakh in a financial year.
  • Senior citizens are offered a higher rate of interest as compared to regular customers.

Types of Fixed Deposits

Normal Fixed Deposits:  In this type of deposit, money is deposited for a fixed tenure from 7 days to 10 years. Interest rates are higher than a normal savings account.
Tax-Saving Fixed Deposits: It is a one-time lumpsum deposit. There is a tax exemption on the principal deposit amount of up to Rs.1.5 lakh in a calendar year. The lock-in period is of 5 years within which you cannot withdraw the amount.
Senior Citizen Fixed Deposits: This is applicable for individuals above 60 years of age. Senior citizens are eligible for special rates.
Cumulative Fixed Deposits: In this kind of deposit, interest is compounded every quarter or year and paid at the time of maturity.
Non-Cumulative Fixed Deposits: Here interest is paid out monthly, quarterly, half-yearly, or annually, as per your choice. This type of deposit is best for pensioners looking for a regular source of income.
Flexi Fixed Deposits:  It is a special kind of deposit scheme offered by banks where you are required to manually add money to your deposit account. You get the benefit of both the liquidity of savings accounts and the high returns of fixed deposits.

Chit Fund Vs Fixed Deposit

The basic difference between Chit Fund and Fixed Deposit is that the fixed deposit upon maturity offers a fixed return based on the rate of interest. On the other hand, the chit funds have comparatively higher interest rates than the fixed deposits, and the returns are paid monthly in the form of dividends.

Join an online chit plan and start your savings journey with ease

A quick comparative glance at chit fund vs fixed deposit to help you get a fair idea of the pros and cons of choosing a particular option:

Chit Fund Fixed Deposit
Pays competitive interest rate than banks. Investors can get returns as high as 12-15% Interest paid by banks range between 7.5-9.5%
The interest is paid in the form of dividend every month The entire principal amount + interest is returned only on maturity
Liquid. The chit can be used for any planned or unplanned expenditure Illiquid. The principal amount cannot be used by the investor if he has to incur any unforeseen expenditure

Investing in a chit fund may result in higher profits than FDs. But do your due diligence and choose your chit fund wisely. Ensure that your chit fund company is either run by the state government or registered under The Chit Funds Act.