What is the Difference Between a Chit Funds and a Mutual Fund?

What Is an Emergency Fund?

What Is Chit Fund?

What Is Mutual Fund?

What Are the Differences Between Chit Funds and a Mutual Fund?

Although both chit funds and mutual funds are investment options, diving deeper into them will show several differences in their functioning. Check out the major differences between these two:

Perspectives

Chit Funds

Mutual Funds

Method of Operation

In chit funds, people contribute a specified amount to the fund every month, which is auctioned off to one person.

Funds have been pooled from investors and invested in securities.

Expenses

Organisers charge about 5% or more for the services they provide.

In mutual funds, AMCs take a portion of the profit, around 2 to 3%.

Reason for Investing

For short-term investment or borrowing purposes.

Generally for earning returns on surplus income.

Rate of Return

It differs from one to another.

Mostly it remains constant and is based on market competition and fund managers’ decisions.

Risk Involved

Usually, unregistered chit funds are very risky owing to fewer rules and regulations.

Mutual funds are mainly prone to market risk.

Maturity Period

Mainly, it persists for as many months as the number of members.

There is no fixed date or tenure. Investors can invest on a short, medium, or long-term basis.

Tax Efficiency

The amount of returns obtained from chit funds is not taxed.

Various mutual funds possess various tax rates for long and short terms.

What Are the Benefits of Chit Funds?

What Are the Benefits of Mutual Funds?

FAQs About Chit Funds Vs Mutual Fund

How many times one can withdraw money from a mutual fund? up-arrow

The mutual fund schemes are open ended schemes that enables you to redeem the total invested amount without any kind of time restrictions.

What are the popular chit funds in India? up-arrow

Some well-known chit fund houses in India include Mysore Sales International, Government of Kerala Linked Chitty, Amruthadhara Chits and Finance Private Limited, Kerala State Finance Enterprise (KSFE), Shriram Chits, and so on.

Is investing in a mutual fund safer than a chit fund? up-arrow

Although both investment options are prone to risks, a mutual fund is comparatively more secure than a chit fund since it is controlled and regulated by the Securities and Exchange Board of India (SEBI).