Am seeing lot of my relatives are investing in Chit funds. Assume they are 100% trust worthy. But the question over here is , they are investing not for borrowing (means they will not bid). Lets say it is 2 Lakhs chit, 10k per month(20 months), they will NOT bid for the money untill the end of 20 months. Their motto is only to save money and get a lumpsum (2 Lakhs) at the end of 20 months. Amount paid in 20 months : 176000 INR ( Roughly). Amount they got after 20 months – 2 Lakhs INR. Profit – 24000 INR. Yearly around 7 % return !
Could you please suggest a better mode of investment in Mutual fund which can generate around 8-10% returns through SIPs ?
Also if possible please write an article on why Chit fund is NOT suitable if you are not a borrower.(if am right 🙂 )
At least let me know in this answer,whether MF SIPs can be better replacement for chit funds and the chances of getting better returns ( around 8-10 %) is high.
Chit Fund is a complex investment product. Advisable to avoid investing in such products when we have a better product like MFs, which are transparent, flexible, highly liquid, better regulated, have wider options etc.,
May I know your investment horizon (time-frame)??
You know what, I have an article on Chit Funds in draft mode for the past 2 years, unable to give it a better shape (its a very complex product to explain in a simple way) 🙂 🙂
Thanks for your reply.
The Idea behind this question is NOT to understand how chit fund works. But how to replace it with Mutual Fund for NON borrowers of chit fund group ? Many of my relatives are participating in Chit fund and they do take money in the middle , they will wait till the last chit and take the entire money. They are simply using it only as a “Savings tool”. I thought Mutual fund can replace that savings method to get better returns, apart from high liquidity and transparency.
As you asked for the time frame. My Time Frame is 20 months, Amount : 10000 Per Month.
I want a SIP for 20 months, the amount i got after 20 months can be used for any long term investment or for any expense.
Chit Fund Return details:
Invested amount : 176000 (as they give monthly discount for non borrowers)
Time: 20 months
I want a SIP in mutual Fund to beat this return. I can take high risk. I felt Hybrid Aggressive funds are suitable.
Yes, MFs can be used as an alternative to Chit Fund.
Is your investment horizon 2 years? Do you need this money after this period?
Yes I need the money. Assume that i have an expense at the end of 20 months. If i do not have any expense whatever the money i got i will shift for Long Term expense.