LotusInd Chit Fund Company

WHY LOTUSIND CHIT FUND COMPANY

Chits (vs) Fixed deposit

A Fixed deposit is accepted for a pre-determined time period. Interest paid by banks range between 7.5-9.5% and is dependent on government regulation. The interest earned from fixed deposits can either be taken out periodically (monthly/quarterly/half yearly/yearly) or an investor can earn cumulative interest which is paid at the end of the term period. Fixed deposits offered by corporate sector carry a higher rate of interest but are risky and an investor will have to take an informed decision. A fixed deposit is illiquid. The principle 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. A chit on the other hand can help an investor by paying him an interest rate between 12-16%. The interest is paid in the form of dividend. If an investor has lump sum amount, he can invest the same in a vacant chit. By investing in a vacant chit, the waiting period is shorter; the investor can participate in an auction and use those funds for any planned or unplanned expenditure or wait until the end of the chit and enjoy higher dividends.

Chits (vs) Recurring deposits

Recurring Deposit scheme is offered by almost all banks in one form or the other. Recurring Deposit is very popular among the salaried class, especially who can afford to save only few hundred or say few thousand rupees per month. This scheme is a boon for people who do not have a large amount of savings and thus cannot use the Fixed Deposit scheme of the banks. Under this scheme, the customer deposits a minimum amount (normally fixed) every month and bank pays the interest at the pre-determined rates (which is usually lower than that for fixed deposits). At the end of the period i.e. on maturity date, the customer is paid the maturity value i.e. principle deposited and the interest payable. The current rate offered by banks is around 8.5%. This is subject to government regulation. charged and the risk involved in investing here would be very low in comparison to a mutual fund.

Chits (vs) Credit Card

Credit card is a convenient way to spend money. It entices the customer as he does not have to shell out any money when he makes purchases at a retail store. It also induces him to spend more than he can actually afford with the BUY NOW – PAY LATER mantra. The bank at the end of the billing cycle, which is usually at the end of the month, allows its customer to pay a minimum balance instead of the full amount allowing its customer to carry the remaining balance to the next month. The bank allots a higher credit amount without giving much thought to the paying capacity of the customer. The customer falls into this trap by buying more than he can afford, paying the minimum balance at the end of the month, transferring remaining balance to the next month. This becomes a vicious cycle. Little does the customer realize that he is charged exorbitantly almost up to 40% when the credit card balance is revolved in this manner. He gets caught in the credit card debt trap. A smart investor would want to use the SAVE-BORROW-PAY mantra instead of BUY NOW – PAY LATER. He would save at a higher interest cost, borrow at a lower cost and rescue himself form unnecessarily exorbitant interest costs. This is possible by having financial discipline and by planning, investing and saving and borrowing using chits.

Chits (vs) Stock Markets

Investing in the stock market requires a lot of personal time and effort to understand the financials of the stock, to time the market and buy the stock. After purchasing the stock, the investor cannot be complacent. He must keep a track of the stock market and the company in which he has brought stock and keep a constant tab on whether he in must hold or sell the stock. Even an investor who wants to invest for a five year time period must keep himself abreast with the happenings of the stock market. He must make financial calculations whether the returns gained from the stock market may be more than what he would have gained from a less risky financial instrument, like a chit. the interest cost would be equal or less than what is offered by the retail outlet or finance company.

Education and Marriage

For a majority of Indians, Education and Marriage of their children are of prime importance. Increasing education costs all the way from primary schooling to higher education and beyond puts the onus on parents to plan for such expenses from the very beginning. Taking an education loan is expensive in India. Interest rates charged by banks on an education loans are much higher than home loans since there is no tangible collateral for the bank when the loan is approved. Investing consistently in chits would help a parent meet the education expenses of their children. Marriages in India are an expensive affair. They may be made in heaven but have to be paid for on earth. Since marriage is inevitable, it must be planned for, more so in the case of a girl child.Chit Funds can provide the liquidity that is required to fund a wedding at a much lower interest cost in comparison with bank loan.

CHIT FOR SAVING AND INVESTMENT

Never let your money sit idle, make it work harder than you do. Investing is a lifelong process. The sooner you start; the better off you'll be in the long run. It's best to start saving and investing as soon as you start earning money. The discipline and skills you learn will benefit you for the rest of your life. But no matter how old you are when you start thinking seriously about saving and investing, it's never too late to begin. There are two compelling reason to save using chits

Chit (vs) Bank Loans

Tremendous growth in the banking sector has seen an explosion of personal loans given to young salaried employees in the information technology, BPO and other sectors. This segment has higher disposable income and is willing to spend on cars, motorbikes and the like. Banks/financial institutions charge an interest rate anywhere between 12-24% on personal loans. There is also no guarantee that the loan application will be accepted. The Equated Monthly Installments (EMI’s) are higher due to higher interest costs. If an employee is smart, he can plan his purchase of a car using a chit. The interest cost, paperwork and sureties required are much lesser in comparison with a personal loan.

Chits (vs) Mutual Funds

Systematic Investment Plans or SIP’s as they are popularly known are marketed aggressively to the younger generation, high net worth individuals and the like. A SIP is a financial scheme where investments are made daily, monthly or quarterly. These investments are invested by the fund company in the stock markets. Every fund has a Net Asset Value (NAV). The fund issues shares. The number of units allotted to the investor would depend on the amount he invests and the NAV of the fund at that particular point in time. So the number of units issued would vary depending on the NAV. It is important to note that the NAV is entirely dependent on the market conditions prevailing at that time. There are chances where the current value of investment is less than the actual cost of investment. There are entry and exit loads i.e. charges which have to be paid by the investor to join or exit the fund. To sum up investing in a mutual fund carries moderate to high risk depending on the market. Investing in a chit is similar to a SIP, where the investor would invest money monthly into a chit fund group he chooses. The monthly installment would vary depending on the competition in the group. There is no entry or exit fee

Small and Medium Enterprises (SME’s)

Cash flows are the lifeline of business - big or small. Usually big businesses manage to meet their capital requirements with the help of banks and other formal financial channels. Banks extend timely support to big enterprises and it is a win-win situation for both parties. Small businesses are traditionally avoided by banks and formal ﬁnancial institutions because of their accounting procedures, lack of proper recordkeeping and are unable to provide satisfactory security. They have been historically wedged between the money lenders, with their exorbitant cost of loans, and banks, with their stringent procedures. Chit funds are a more suitable ﬁnancing model for small businesses mainly because they do not require rigorous documentation. Chit funds have been helping small businesses overcome their ﬁnancial constraints. As and when the need arises, SME’s bid in the auction and receive the loan out of their own funds. Once they receive the loan, they continue to pay the monthly contributions, and this accounts for payment towards both the interest and principal which makes the repayment easier and less arduous. Also, in chit funds, small traders can decide their own interest rates depending on their need. Chit fund interest rates are in effect the market determined interest rates. Thus a small enterprise, with prudent planning can meet their capital requirements with the help of a Chit Fund .

Individual / Family

All of us would like to own a Car, a Home, Land, a Personal Computer an LCD TV and myriad other possessions to make our life worth living. It is possible to own every conceivable luxury with proper financial planning. In short you can fulfill every dream with proper financial discipline. Investing a portion of your income in chits would help you own any gadget or vehicle land and other assets etc you have been keen on possessing. An equated monthly installment (EMI) offered by a retail outlet would include hidden charges and interest costs. Most importantly, the asset itself is mortgaged/hypothecated to the finance company or retail outlet offering such EMI. Planning via a chit fund would not entail any such hypothecation and A higher rate of return in comparison to a bank deposit. They are liquid in nature. A chit can be used to meet any unforeseen expenditure. It can also be used to meet a planned expenditure. A chit is the only financial product that allows you to save and borrow. The rate of return generated by saving using a chit is much higher than what is offered by banks. The risk involved in saving using a chit would depend on the chit fund company . We would recommend using a registered chit fund company which has been operating for at least a decade or more with a proven track record. While parking your hard-earned money as a fixed deposit with a bank would entail no or negligible risk and similarly generate less returns, rotating your funds using a chit fund would entail low risk while generating 12-16% returns annually depending upon which month you lift the chit. An intelligent investor is one who diversifies his risk portfolio. Entire disposable income or surplus income should not be invested in any one single financial product alone. Investments must be spread across various financial products like Insurance, Stocks, Mutual Funds, Bank Deposits and Chits. The individual investor should act consistently as an investor and not as a speculator. This means that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money’s worth for his purchase – Mark Cuban