The Kerala State Financial Enterprises (KSFE) is a government-owned personal finance company, headquartered in Thrissur. The company accepts deposits, disburses loans in various segments like housing finance, automobiles, trade and personal loans. One of the most lucrative savings schemes advertised by the firm, and in fact the backbone of the organization, is chitties, of which each branch maintains a lot of schemes. The terms and conditions of the institution in disbursing prized chits are so cumbersome that most of the people prefer to deposit the money in KSFE itself till the tenure of the chitty is over. Recently, I had the opportunity to inspect the chitty passbooks of two chitties of KSFE. The inference is interesting and outrageous at the same instant.
1. Chit No. 12/09, Prize: Rs. 50,000, Instalments: 25, Amount: Rs. 2,000, KSFE’s Commission: 5%
Instalment | Amount Paid (Rs.) | Cumulative (Rs.) |
1 | 2000 | 2000 |
2 | 1858 | 3858 |
3 | 1810 | 5668 |
4 | 1858 | 7526 |
5 | 1848 | 9374 |
6 | 1894 | 11268 |
7 | 2000 | 13268 |
8 | 1940 | 15208 |
9 | 1932 | 17140 |
10 | 2000 | 19140 |
11 | 1952 | 21092 |
12 | 1958 | 23050 |
13 | 1946 | 24996 |
14 | 1956 | 26952 |
15 | 1970 | 28922 |
16 | 1976 | 30898 |
17 | 1974 | 32872 |
18 | 1980 | 34852 |
19 | 1998 | 36850 |
20 | 2000 | 38850 |
21 | 2000 | 40850 |
22 | 2000 | 42850 |
23 | 2000 | 44850 |
24 | 2000 | 46850 |
25 | 2000 | 48850 |
The depositor can only get 95% of the chitty amount, deducting KSFE’s 5% commission. In this case, it comes to Rs. 47,500, whereas he has already paid Rs. 48,850! This means that the company robs the unsuspecting depositor of Rs. 1,350.
I thought this specific case to be an exception rather than the rule and looked into another chitty of a larger amount. Here, Prize: Rs. 1,00,000, Instalments: 25, Amount: Rs. 4,000, KSFE’s Commission: 5%
The passbook runs as follows
Instalment | Amount Paid (Rs.) | Cumulative (Rs.) |
1 | 4000 | 4000 |
2 | 3960 | 7960 |
3 | 3820 | 11780 |
4 | 3800 | 15580 |
5 | 3748 | 19328 |
6 | 3744 | 23072 |
7 | 3740 | 26812 |
8 | 3796 | 30608 |
9 | 3794 | 34402 |
10 | 3796 | 38198 |
11 | 3812 | 42010 |
12 | 3850 | 45860 |
13 | 4000 | 49860 |
14 | 3996 | 53856 |
15 | 3920 | 57776 |
16 | 4000 | 61776 |
17 | 4000 | 65776 |
18 | 4000 | 69776 |
19 | 4000 | 73776 |
20 | 3956 | 77732 |
21 | 3988 | 81720 |
22 | 3996 | 85716 |
23 | 4000 | 89716 |
24 | 4000 | 93716 |
25 | 4000 | 97716 |
Here, the amount receivable is Rs. 95,000 only, while the company collected Rs. 97,716, pocketing Rs. 2,716 of the depositor’s hard-earned money!
Let’s now compare the yield of other deposit schemes. We take three cases
1. KSFE chitty (our present issue)2. Recurring deposit in a bank @ 9% interest and quarterly compounding
3. Iron box deposit (simply put the money in an iron box underneath your bed!)
| Option | Amount obtainable after 25 months |
| KSFE | 47,500 |
| Recurring deposit | 54,732 |
| Iron box deposit | 50,000 |
Even the iron box deposit yields 5.36% more than KSFE!
19 comments:
KSFE chitty gives almost similar returns as RD. Additional benefit is an opportunity to draw money in advance...that is all
This post is perhaps an illustrative example of what blog posts lack when compared with magazine articles or even newspaper reports. With a bit of research, the author could have easily identified the benefits of KSFE chits, or any chitty for that matter. KSFE does not have monopoly in chitty business. It conducts chit business in field heavily populated by private operators. The only difference is trust. The money is secure in KSFE's hands.
Coming back to the post, its problem is that the author has checked only the chitty passbook. There are many things that a passbook does not tell you. For instance, you can get the prize money even at the first installment and put it for good use, for starting business or buying some valuables. You can even put the whole amount as FD. By putting an FD, which can be compared with RD returns, you are likely to get almost the same returns of an RD, if not more.
The basic thing is that one cannot understand the financial benefits of chitties, unless one thinks of it with reference to loans and FDs.
Visit this page to find more about KSFE chitties: http://atlevg.blogspot.in/2009/08/why-chitties-why-ksfe-and-why-attingal.html
Everyone is entitled to his opinion and GlancingCliffs's opinion is no different. However, the data speaks itself and the conclusions one can draw from it is self-evident. GlancingCliffs also don't deny them.
Sajith, thanks for publishing the comment.
Let me explain chitties with the help of your data, since you do not seem to get my point.
First of all, there is a glaring mistake in your third table. "Amount obtainable after 25 months" with KSFE is not 47500. [And you won't get any yield by putting money in an iron box. If you put Rs. 48850 in an iron box, what you get is Rs. 48850 - not Rs. 50000 - unless the iron box has any mystical powers like the mythical Akhayapathram in Mahabharatha.]
Well, coming back to chitties, different people get different amounts at the end of chitty if they choose to deposit the amount in KSFE.
For instance, take the person who gets the prize money in the first month of the chitty itself.
Based on the data provided in your first table, the person who won the chitty in the first month should have received an amount of Rs. 43950. If the person chose to deposit the amount in KSFE itself, he or she would have got an amount of Rs. 52301 at an interest rate of 10.5% at the end of the chitty.
Likewise, other people who got chitty in later months get similar amounts at the end of the chitty.
But the real benefit of these particular chitties is not the savings. A general rule of choosing a chitty is that short term chitties - 30 or 40 month duration or less - are not for savings. These are a substitute for loans. If you think in a savings point of view, please check the passbook of chits with at least a duration of 40 months or more. If you check a passbook of chitty with 100 months, I am sure you will find the yields impressive.
Let me elaborate on the benefit of chitty as loans. As already mentioned, the person who gets the prize money in the first month will get an amount of Rs. 43950. He or she needs to repay Rs.48850/- over a two-year period.
In terms of a loan, the the amount of interest the person repays is Rs. 4900 only. That is an annual flat rate of interest of 5.6% only. That is why many small businessmen and people who are in urgent need of money join short term chits. People who look for RD-like returns tend to join long-duration chitties.
Sorry for the long reply - but can't help it.
Three facts need to be clarified here.
1. There doesn't seem to be any mistake in the table. I understand that KSFE pays you back 95% of the amount after the full tenure, deducting their commission. For Rs. 50,000 it will be 47,500. Please correct me if this is wrong.
2. Rs. 48,850 put in an iron box definitely won't give you more money than what you put into it. But still, it will be more than 47,500 that KSFE will give you.
3. If you are truly lucky enough to win the chitty in the first few months, it will be profitable. But can you take it out of KSFE before the full term is over? Trying to get Ajmal Kasab on parole would be easier!!
See the above comment. KSFE275 (whoever he is) has nothing to say other than terming the post stupid, as if he has done some homework.
Such irresponsible comments enhances the veracity of the arguments.
Dear Sajith, here is the clarification you need:
1. Yes the full amount of any given KSFE chitty is 95% of chitty sala. Thus for a Rs50,000/- chitty the full amount will be Rs.47,500/-.
2. I think there is no clarification needed about the amount put in the iron box.
3a. There is nothing lucky about winning these two chitties you mentioned here. These are very short-term chitties of 25 months. The lowest amount ever in a chitty is 70% of sala which will be Rs.35000/- for Rs.50,000/- and Rs.70,000/- for Rs.1,00,000/ chitties-. As you can see the chitties are paid for Rs.43950 (Rs.1858 x 25 - 2500 Commission) and Rs.94000 (Rs.3960 x 25 - 5000 Commission) respectively they are way to close to full amount. So there is no high competition and anyone willing to get that chitty can easily win.
3b. About “But can you take it out of KSFE before the full term is over?”. Do you think KSFE can conduct chitty business for this much years and can in fact grow this fast if the customers are not paid on right time? Chitty is a savings cum loan account so in any given time of payment the installments you paid are your savings and the future installments are your liability. Like any loan payment you need to give surety for your liability before taking the full chitty amount home. In fact the whole success of chitty business depends on it. Below is why
KSFE is a fully government owned institution with no loans from outside or grants from government. The chitty business is performed as a scheme where amount collected from all subscribers of a chitty is given to one subscriber in a month. In your 25 months chitties, there will be 25 subscribers including KSFE (it is mandatory that KSFE must be a subscriber to conduct that chit). So at the first auction a subscriber gets the chitty for Rs.43950/-. KSFE collects Rs.1858 from every customer including itself, retains its Rs.2500/- (5%) commission and pays Rs.43950/- to the prized subscriber. So what if there is no surety about the future payments from this prized subscriber? There will be only 24 subscribers left to pay the chitty amount. After some installments if there are 10 defaulted prized subscribers there will be a shortage of Rs.20000/- on a payment of Rs.47500/-. So how can a business survive without loans or financial assistance from external sources? And theses loans/assistances come with some heavy burden or rules. You don’t want KSFE to be turned into something like KSRTC with so massive every-growing losses. Please also think how a financial institution can go on with its business in that scenario.
Tailpiece: You don’t have to provide any surety if you are looking for savings. You can invest your chitty amount in KSFE for 10.5% or 10.25% interest and you can receive monthly interest payments or additional 5.5% interest on that interest amount. So if you got the first auction and invest it in KSFE, you can receive an interest of Rs.9230 at the end of chitty (Rs.43950 x 10.5% /12 x 24).So the total amount will be Rs.53180/- that would be Rs.5680/- more than the chitty full amount.
Also if you really want to savings try to join a longer duration chitty.
Dear Sajith, here is the clarification you need:
1. Yes the full amount of any given KSFE chitty is 95% of chitty sala. Thus for a Rs50,000/- chitty the full amount will be Rs.47,500/-.
2. I think there is no clarification needed about the amount put in the iron box.
3a. There is nothing lucky about winning these two chitties you mentioned here. These are very short-term chitties of 25 months. The lowest amount ever in a chitty is 70% of sala which will be Rs.35000/- for Rs.50,000/- and Rs.70,000/- for Rs.1,00,000/ chitties-. As you can see the chitties are paid for Rs.43950 (Rs.1858 x 25 - 2500 Commission) and Rs.94000 (Rs.3960 x 25 - 5000 Commission) respectively they are way to close to full amount. So there is no high competition and anyone willing to get that chitty can easily win.
3b. About “But can you take it out of KSFE before the full term is over?”. Do you think KSFE can conduct chitty business for this much years and can in fact grow this fast if the customers are not paid on right time? Chitty is a savings cum loan account so in any given time of payment the installments you paid are your savings and the future installments are your liability. Like any loan payment you need to give surety for your liability before taking the full chitty amount home. In fact the whole success of chitty business depends on it. Below is why
KSFE is a fully government owned institution with no loans from outside or grants from government. The chitty business is performed as a scheme where amount collected from all subscribers of a chitty is given to one subscriber in a month. In your 25 months chitties, there will be 25 subscribers including KSFE (it is mandatory that KSFE must be a subscriber to conduct that chit). So at the first auction a subscriber gets the chitty for Rs.43950/-. KSFE collects Rs.1858 from every customer including itself, retains its Rs.2500/- (5%) commission and pays Rs.43950/- to the prized subscriber. So what if there is no surety about the future payments from this prized subscriber? There will be only 24 subscribers left to pay the chitty amount. After some installments if there are 10 defaulted prized subscribers there will be a shortage of Rs.20000/- on a payment of Rs.47500/-. So how can a business survive without loans or financial assistance from external sources? And theses loans/assistances come with some heavy burden or rules. You don’t want KSFE to be turned into something like KSRTC with so massive every-growing losses. Please also think how a financial institution can go on with its business in that scenario.
Tailpiece: You don’t have to provide any surety if you are looking for savings. You can invest your chitty amount in KSFE for 10.5% or 10.25% interest and you can receive monthly interest payments or additional 5.5% interest on that interest amount. So if you got the first auction and invest it in KSFE, you can receive an interest of Rs.9230 at the end of chitty (Rs.43950 x 10.5% /12 x 24).So the total amount will be Rs.53180/- that would be Rs.5680/- more than the chitty full amount.
Also if you really want to savings try to join a longer duration chitty.
"So there is no high competition and anyone willing to get that chitty can easily win"
I do not subscribe to this view.
Sajith mentioned "Based on the data provided in your first table, the person who won the chitty in the first month should have received an amount of Rs. 43950. If the person chose to deposit the amount in KSFE itself, he or she would have got an amount of Rs. 52301 at an interest rate of 10.5% at the end of the chitty"
Why would some one not want the first chitty and wait till end ? So there is competition to win it . If you are lucky to get the chitty in the first 5 months you may break even compared to an FD.
From an investment point of view I have found RC always gave me more returns weather it is short term or long term . I challenge you to release a table which will give me more returns ( short term or long term ) compared to an FD.
ksfe chits are beneficial only to who gets draws in initial stages, and if they put that in fd or whatever, but people who joining chits for savings or making a corpus never ever try to join on these, if they start a postoffice rd(which gives lowest interest) it will be better than these instruments,
please read my blog and it will tell you all about KSFE and how they make money ..
http://scam-ksfe.blogspot.ae/
http://www.deshabhimani.com/news/kerala/latest-news/414045
More on KSFE scam
KSFE is managed by a mob or robbers and the corrupt politicians are involved in funnelling out money cheating thousands of poor customers
KSFE CHITS ARE NOT GOOD IN SAVINGS POINT OF VIEW.CONSIDERING THE INTEREST FOR THE INSTALMENTS PAID AND THE MATURITY AMT THERE IS NO BENEFIT.
Partly agree with the illustration. KSFE Chit fund as a mode of investment is attractive only to those who can deposit the prize money and earn the interest. This interest must also be taken into account in the illustration
Pls don't compare Ksfe chitty as a savings instrument. Its an alternative to easy and ecomocal loans.
The basic concept of Chitty, is to pool in a monthly amount from a group of ppl and allot it to one of the members of the group, each month. This is done by lucky draw. However if there are more than one person requiring fund in a month, then its decided by bidding.
I have been utilising Chitty for my business fund requirements since 2007. I have never been lucky to win a lucky draw in the initial months, hence had to always go for the bidding. Though I havnt calculated the exact profit / loss figures of each Chitty, I can confidently say that it was profitable than a personal loan by all means.
And finally to top it, thanks to the demonitisation month of November, I got a Chitty prize money of 9.65 L, on the 4th month of a 10L chitty of total 40 months. (The auction dates were postponed due to currency shortage, and there werent any one else to participate in the auction)
The ultimate benefit of a chitis that you could join the auction anytime u need the money and get it easily. It is better than a loan pov and not so good in a savings pov.If you are planning to build a home and short of some lakhs u could join a chit and auction it immediately.
Ksfe will profit whatever happens in this arrangement . The loan taker or investor will end up losing compared to other avenues of investing money , of still interested in govt scheme post office rd is far better . The chance of getting a lucky in first few Chitty lots and nula mala of getting it from Ksfe is not easy . Ksfe any way gets to make 5% of everyone's money by just managing this . And Kerala is literate by still we had total 4 you,solar and other scams . Investing literacy is very poor .
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