Kerala Finance Corporation (KFC) offers chitty schemes, a popular savings-cum-credit instrument in Kerala. Chit funds, also known as chitties, are essentially rotating savings and credit associations where a group of individuals contribute a fixed sum periodically, and the accumulated amount is then auctioned or drawn, with the winner receiving the lump sum.
KFC’s chitty schemes aim to provide accessible and affordable financial solutions to individuals and businesses. They offer a structured way to save and simultaneously provide an opportunity to access a significant sum of money when needed. This makes them attractive to a wide range of people, from those planning for future expenses like weddings or education to small business owners seeking working capital.
Here’s a breakdown of how KFC chitty schemes generally work:
- Subscription: Individuals subscribe to a chitty scheme by agreeing to pay a fixed installment regularly (monthly, quarterly, etc.) for a predetermined duration.
- Chitty Value: Each chitty scheme has a total value representing the accumulated contributions over the scheme’s duration.
- Auction/Draw: Periodically (usually monthly), an auction or draw is conducted. Subscribers bid for the chitty amount by offering a discount (foregoing a portion of the total chitty value). The subscriber offering the highest discount wins the bid and receives the discounted chitty amount. In some schemes, a draw may be held if no one bids.
- Foreman Commission: KFC, as the foreman (the organizing institution), charges a commission, which is typically deducted from the chitty amount before disbursement to the winner.
- Subscriber Benefits: Subscribers who win the bid receive a lump sum of money for their immediate needs. Those who don’t bid or win early continue to contribute and essentially earn interest on their savings through the discount offered by the winning bidders.
- Security: KFC, being a government-owned entity, provides a level of security and trust to subscribers compared to private, unregulated chitty operators. Subscribers are required to provide collateral or guarantees to ensure timely repayment of their contributions if they win the bid early.
Benefits of KFC Chitty Schemes:
- Accessibility: Chitty schemes are relatively easy to access, even for individuals with limited access to formal banking services.
- Savings Habit: They encourage a disciplined savings habit as subscribers commit to regular payments.
- Credit Access: They provide access to a lump sum of money when needed, which can be useful for various purposes.
- Returns on Savings: Subscribers effectively earn interest on their savings through the discounts offered by winning bidders.
- Government Backing: KFC’s government ownership provides a degree of security and trust.
It’s important for potential subscribers to carefully consider the terms and conditions of a KFC chitty scheme, including the subscription amount, duration, auction rules, and commission charges. Understanding these aspects helps ensure that the chitty scheme aligns with their financial goals and risk tolerance.
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