If you live in Kerala or is a Malayalee like me, you’d have heard about KSFE Chitty.
Chitties or Chit Funds are an integral part of savings in most Kerala households.
The most popular chit fund in Kerala is run by KSFE (Kerala State Financial Enterprises). Just like the state lottery, the Kerala state government runs KSFE.
What is Chitty? How Does a Chit Fund Work?
A chit fund/chitty is a combination of a recurring deposit and a loan.
Imagine that 100 people come together to form a chit fund. Each person commits to putting Rs 1,000 per month towards the Chitty.
Now the total chitty amount or “prize money” is Rs 1 Lakh (Rs 1,000 * 100).
Since there are 100 people in the Chitty, the Chitty will go on for 100 months. This gives everyone in the Chitty an opportunity to win the prize money.
If you need money urgently, you can participate in the “lelam.” The payout or “prize money” will go to the person who agrees to take the lowest amount (max discount applicable).
If more than one person bids for the same lowest amount, a lot is drawn to decide who gets the money.
The discount applied is then distributed among the Chitty members. This is the dividend payout.
There will be a person or an institution that oversees the Chitty. They will run the Chitty, handle the finances, and ensure everything runs smoothly. For this, from each Chitty, they get a commission.
Explaining With an Example
Let’s take the example of a Rs 1 Lakh chitty with 100 members. Divided equally, you need to pay Rs 1,000 for 100 months to complete the Chitty.
KSFE is the institution that runs the Chitty. They charge a 5% commission for the services they offer.
In the first month, you need to remit the full amount – Rs 1,000.
Let’s say a Roshan, a chitty member, is in urgent need of money. The lowest amount they can bid is 25%. E.g., if the chitty amount is Rs 1 lakh, the lowest you can bid is Rs 75,000.
Since Roshan needs the money, he bids the lowest amount. If no one else bids the same amount, he gets the prize money.
KSFE takes the 5% commission. So the payout to Roshan is Rs 70,000 (Rs 75,000 – 5% KSFE commission on the one lakh prize money).
Rs 25,000 is the discount. This is equally distributed to all members in the form of dividends. In this case, Rs 250 per person.
So, the next installment, you have to pay Rs 750 only (Rs 1000 – Rs 250).
KSFE Chitty Plans
There are various chitty plans that KSFE runs.
The monthly amount can range from Rs 1,000 to Rs 5 Lakhs. The duration is usually 30 months, 40 months, 50 months, 60 months, or 100 months.
To get the latest KSFE chitty schemes, call their Toll Free No: 1800 425 3455 or contact your nearest KSFE branch.
KSFE Chitty Analysis – What Returns do Chitties Gives?
KSFE is a tricky product to assess.
The prize money is guaranteed since the government runs KSFE. However, the returns are unpredictable. The returns depend on when you get the “prize money” and the dividends.
Sometimes it can be a blockbuster fixed-income investment. Other times, a bank savings account might be a better investment option.
So I did a detailed analysis assuming a chitty of Rs 10 Lakhs with Rs 10,000 as the expected monthly payment.
The various scenarios are modeled based on the assumption that you will re-invest the chitty prize money into a KSFE FD. The modeling also takes into account that initially, dividends will be high. Later on, dividends will decrease.
| 10th Chitty | 25th Chitty | 50th Chitty | 75th Chitty | 100th Chitty | |
| Invested Amount | 419,250 | 463,875 | 573,250 | 682,625 | 796,375 |
| Duration | 100 Months | 100 Months | 100 Months | 100 Months | 100 Months |
| Maturity Value | 700,000 | 700,000 | 700,000 | 825,000 | 950,000 |
| Absolute Return | 280,750 | 236,125 | 126,750 | 142,375 | 153,625 |
| Absolute Return % | 66.96% | 50.90% | 22.11% | 20.86% | 19.29% |
| XIRR | 11.23% | 8.72% | 4.17% | 4.18% | 4.33% |
Learning:
- The earlier you win the prize money, the higher your returns
- Getting the prize money after 50% chitty is completed is often a poor return on your investment
- If you are looking at Chitti as a loan, then the interest rate will be better than taking a personal loan
Getting Your Hands on The Prize Money
If you win the prize money, you have two options:
- Withdraw the money
- Deposit the money back into KSFE FD
If you choose to withdraw the money, you’ll need to provide collateral. KSFE accepts various securities like personal guarantee, LIC policy, property security, etc. You can see the full list here.
Other Offerings by KSFE
In addition to Chitty, KSFE offers various services:
- Safe deposit locker
- Money transfer
- Deposits – short-term and FDs
- Loans
FAQ
Should I Invest in a Chit Fund?
That depends. If your city has a trusted government-operated chit firm like KSFE, then yes. Also, take a look at the analysis section. See if it makes sense for you to invest in a chit fund.
Is KSFE Safe?
Yes. KSFE is owned and operated by the Kerala State Government. KSFE has 600 branches and more than 6,700 employees across the state.
What Return Can I Expect From a Chit Fund?
Your returns can range from 3% to 12%. The returns depend on when you get the Chitty, what discount you agreed to, how you use the prize money, etc.
How Much Commission Does KSFE Take?
For each Chitty, KSFE takes a 5% commission. This is in addition to the discount which gets redistributed as dividends.
How Can I Make KSFE Online Payment?
Contact your KSFE branch to get the bank account details of the KSFE branch. Once you remit the amount, you need to send an email/WhatsApp to the branch provided email/number.
Where Can I Find KSFE Downloads?
You can download the Chitty forms by clicking here.
What Are The Various KSFE Chitty Schemes Available?
KSFE does not publish the list of Chitty schemes on its website. You’ll need to contact the branch to get the details about the latest Chitty.
Can NRIs invest in Chitty?
Yes. NRIs can invest in Chitty through KSFE Pravasi Chitty.
If you are an Indian citizen, you need the following documents:
- Indian Passport
- Visa
- Photo
- Residing/Labour/National ID of the country of residence
If you are not an Indian Citizen, you need the following documents:
- OCI or PIO of India
- Valid Passport of Citizenship Country
- Photo
- Residing/Labour/National ID of the country of residence
How Can I Avail KSFE Gold Loan?
KSFE offers gold loans. Walk into your nearest KSFE office between 10 AM and 4:30 PM to avail gold loan.
A maximum amount of Rs 25 lakhs can be availed per day. KSFE charges simple interest. Loans up to Rs.20,000 is charged 9.50% per annum. For amounts above Rs 20,000, interest of 10.50% per annum is charged.
The maximum loan duration is 36 months.
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As per my understanding joining Ksfe is a big blunder. No much dividend nowadays as my 30k after 8 mnths is full amount. And finally I need to pay 45k for KSFE commission. So it’s not profit rather loss !!
Is there any unidentified problems in withdrawing the prize money rather than investing again in KSFE
Scenario :
Already paying an EMI of Rs.70K to Home Loan in which the interest rate is 8.25% with tenure of 23 Years. In this scenario, if I take a KSFE PRAVASI CHITTY of Rs.18 Lacs of 60 Months, will it be beneficial if I am getting the money on 59th or 60th Chit ie. Rs.17,20,000/- where the total instalment would be approx. Rs.16,25,000/- than depositing in RD A/c and making a part payment against the housing loan using the accumulated fund every 13 months.
Please advice if you can.
I have a chitty running for 10lacs. We completed almost 21installments. We were informed that we will be getting 868000 prize money. But when we checked the amount credited, we found around 13000 deducted as gst and other processing charges. Is this the way government oriented chit funds work to cheat people.