How to invest Rs1 000
What is chit fund. And how can you invest in it?
Chit Funds started as a group of people pooling money each month and pulling a lot to determine who would receive all of the money that month. For example, 5 people bundle Rs 1000 / - in the first month. Person "A" receives the drawing and takes the Rs 5000 / -. Next month the same group of people pool Rs 1000 / - again, the person who received the money last month will be removed from the list and again a tie will be made. So everyone pays Rs 1000 / - for 5 months and gets Rs 5000 / - back some sooner and some later. This was done more to purchase large ticket sales or to bring a group of ladies together. There is always a leader who makes sure that everyone pays and manages the process.
In a more business-oriented chit fund, unknown people come together and donate Rs 1000 / -. There is an organizer who is a strong man on site who runs this and makes sure that everyone pays. The variation here is that instead of one lucky raffle, you can buy for discount every month. This month, say you are in dire need of the money, you are ready to take just Rs 4800 / -, there may be someone more desperate and maybe say they are fine with just Rs 4600 / -. The remaining balance of Rs 400 is shared among the other 4 members. So the others who contributed Rs 5000 / - over 5 months will now receive Rs 100 more. For the next month that person will be banned from bidding and another 4 can bid for Rs 5000 or less. The remaining amount will be redistributed, among other things. This is usually done by people who cannot get loans at good interest rates from banks and are essentially taking out loans outside of the financial sector. The people who are mostly part of it make good returns / better than banks. But this entire industry is unregulated and so the strong one can cheat you. There are cases when people who take the first shot at money disappear without a trace.
There are a number of such funds in every city. It is advisable that you do not indulge in such funds.
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