What is chits?

Chits refer to small pieces of paper or tokens that are used to represent a certain amount of money or share in a mutual fund or investment scheme. They are commonly used in India and other countries in Asia for informal savings and credit transactions within communities.

In India, chits are regulated by state governments and are conducted by chit fund companies that specialize in organizing these transactions. Members of a chit group contribute a fixed amount of money to a common pool every month, and one member is chosen by a draw of lots to receive the full amount (minus a certain commission) as a lump sum. The cycle then continues until all members have received their share.

Chits can provide a source of savings and access to credit, especially for those who do not have access to formal banking channels. However, due to the unregulated nature of some chit funds and the potential for fraud, investors need to exercise caution and do their due diligence before participating in any chit schemes.