HomeMutual FundRecurring Deposit vs Chit Fund: Comparison

Recurring Deposit vs Chit Fund: Comparison

Covid-19 has become one of the greatest threats to the health of people around the world and hit the economy badly. With leading problems such as job insecurity, cut-down incomes, etc., the need for emergency funds is constantly increasing.

Saving money is an essential aspect of life. Investing money is the desire of many people. Many people in India still need to be involved in an organized financial sector. And the two most popular short-term investments are chit funds and recurring deposits.

People always have confusion about rd vs chit fund. Many low-income people invest in chit funds because they are not eligible or need bank account paperwork. Chit funds are a good investment. It has had a bad reputation for being abused to trick naive investors.

There are government-operated and registered chit funds that are safe to invest in. Term deposits, on the other hand, are a much safer investment. The yield is fixed and guaranteed at maturity. However, both assets have their pros and cons.

Let’s see the difference between the two options to clarify rd vs chit fund doubts and find out Is chit fund better than rd.

What is a Recurring Deposit?

Recurring deposits are fixed monthly investments with a bank over a pre-defined tenure. The accumulated sum gathers interest paid to the investor along with the lump sum saving.

Recurring deposits are transparent and risk-free, but the interest rates (usually 7% to 8%) remain fixed and do not go as high as they can go in chit fund vs rd based on bidding.

How does Recurring Deposit Work?

Recurring deposits offer the flexibility of saving a significant amount with small instalments. Recurring deposit accounts are opened with banks, wherein customers can deposit a fixed amount every month till the deposit matures. The saving is paid at the end of the tenure, along with interest earned.

Withdrawal: On early withdrawal, a penalty of 0.5% is usually charged.

Tax: TDS or Tax Deducted at Source applies to the income. The bank deducts 10% TDS on withdrawal if the interest earned exceeds INR 10,000.

Benefits of Recurring Deposit

  • Easy to open and invest
  • Small instalments
  • Goal-based saving
  • Safe and secure
  • Availability of loan against recurring deposit

What is a Chit Fund?

A chit fund is community funding where a group of people comes together to create a pool of money every month. Each month one member takes home the lump sum, which means everyone gets the pool money once during the community tenure.

How Chit Fund Works?

Each month, the community members bid on the pool money; the highest bidder takes it home. The bid amount is the interest rate on the pool money paid by the winner. It is distributed equally among the group members.

Chit funds also work on a lottery basis. A lucky draw each month decides who gets the pool amount. The interest rate in lottery chit funds is fixed.

Types of Chit Fund

1. State Government Chit Fund

Run by the state government; for example, Mysore Sales International Limited.

2. Private Registered Chit Fund

Prominent business houses like Margadarsi Chit Fund, Hyderabad, and some cooperative societies run it. Among the popular are registered online recurring deposit vs chit fund which is pretty secure because users are first verified through a background check.

3. Unregistered

Private chit funds that are not legal; usually include friends, colleagues, neighbours, etc.

Benefits of Chit Fund

  • Emergency fund without any paperwork
  • Small monthly investment amounts
  • The benefit of a loan for a big purchase at the beginning of the community tenure
  • Higher interest rate, i.e. greater benefit of the group members, in cases of high bidding

Recurring Deposit Vs Chit Fund

Begin with identifying your needs and analyse both investment options accordingly to clarify recurring deposit vs chit fund doubts. Talk to a financial expert if you require help. You can also consider the comparison of recurring deposit vs chit fund given below:

ParticularsRecurring DepositChit Fund
PurposeOnly investmentInvestment as well as loan
ReturnFixed ReturnLow or extremely high returns through lotteries, bidding, and surplus amount
ProfitGuaranteedNot guaranteed


FeesNo chargesSmall commission fees


TaxTaxable incomeNon-taxable income

Is Chit Fund better than RD?

If you are having questions about whether is chit fund better than rd? You have come to the right place.

Chit funds are similar to RD in terms of regular contributions to the fund. Similar to RD, even if you invest in a chit fund, you must present a fixed amount each month. The only difference in chit fund vs rd is that with RD, you can withdraw the total amount of your savings at the end of a predefined period. On the other hand, investing in chit funds gives you the luxury of being able to bid and collect all the value of your chits in times of crisis or pinch.

That aside, when you invest in chit funds, you are guaranteed to earn at least 10% annual interest. On the other hand, if you put your money in RD, you will only get 5% to 7% interest. Earlier, RDs were a safer form of investment than chit funds, but that was before chit funds were regulated.

The question about rd vs chit fund is clear from every angle that investing in registered and regulated chit funds is worth considering rather than investing in fixed deposits.


Investing in a bank that guarantees your money is safe and guarantees a fixed rate of return is safer. For chit funds, you need to know how it works. Some chit funds become scams, and you may lose your money. Choose your fund wisely by finding out if the fund is controlled by a state government or registered under the Chit Fund Act.

In some cases, some investors who have already won an offer will not invest further, leading to the bankruptcy of the chit fund. Investing in chit funds can be profitable but also lead to losses.

In chit fund vs rd, Chit fund becomes a loan if you win the offer and supports more than you got. A loss can be viewed as accrued interest on a loan. The government is working with nationalized banks to take steps to involve rural and low-income populations in the organized financial sector.

Hope this article has cleared you up about rd vs chit fund.

Recurring Deposit vs Chit Fund – FAQs

Is Chit Fund better than RD?

If the Promoter follows the strict rules, you can proceed with your investment in chit funds.

Do chit funds offer guaranteed returns like RD?

No, investing in chit funds does not guarantee a constant return like Recurring Deposits.

What regulations apply to chit funds?

The Chit Funds Act of 1982 governs Chit Funds in India.

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


Most Popular