Date of Publication :29th June 2024

Abstract: Chit funds, a popular financial instrument in India, play a vital role in informal savings and investment practices. These pooled investment schemes involve a group of individuals contributing fixed amounts at regular intervals, with one member receiving the collected sum through an auction-like process. Widely popular in India, chit funds serve as informal savings and credit mechanisms, catering to diverse socio-economic segments. This research paper comprehensively explores chit funds, examining various types and providing insights into the top chit fund companies in India. It conducts a profitability analysis to assess their financial performance. Additionally, the study investigates the impact of modern financial instruments on chit funds, elucidating how contemporary financial tools influence their functioning. Through in-depth analysis, the paper offers a holistic understanding of chit funds, financial viability, and their susceptibility to the influence of modern financial instruments. Profitability is assessed through Net Present Value (NPV) in three scenarios based its time of lifting chit, measuring the present value of cash inflows against initial investments. This research paper will investigate the influence of contemporary financial instruments, such as stocks, bonds, and mutual funds, on chit funds. Through an examination of individuals' educational qualifications, income levels, financial goals, and risk tolerance, the study aims to elucidate the interplay between these factors and the dynamics of chit fund participation, shedding light on broader financial inclusion patterns. Research findings indicates that lifting the chit at the end of the period is profitable. Despite a trend towards diversified financial instruments, uneducated, low-income individuals persist in investing in chit funds, emphasizing a need for financial education and inclusion.

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