Last Updated on
This calculator returns the CAGR value based on Chit fund cash flows using Excel’s XIRR and IRR functions. Even if you have no interest in chit funds (good for you!), if you are someone who uses Excel to calculate returns (of any financial instrument), I strongly urge you play with this calculator as it highlights the limitations of estimating returns for complex cash flows.
Credits:
Reader R. Siva Prasad, requested that I make this calculator to try and make sense of chit fund returns. Earlier, reader Hari sent a video link which pointed out the limitations of XIRR and IRR when he saw my Investment Returns (XIRR) Calculator
Motivation: I am not a fan of chit funds. I did this for two reasons: Siva Prasad requested it and I saw it as a perfect example for illustrating the limitations of calculating returns for complex cash flows and therefore of the XIRR and IRR functions! No fault of Excels. That is just the way the cookie crumbles.
Chit fund Primer: The way a chit fund operates amazes me. A group of people get together and decide to pay an equal sum of money for a few months. Each month the group members bid on the total amount collected. The person with the lowest bid receives the amount after deducting commission or operating charges and can no longer take part in the bidding. The remaining amount is distributed equally to all the members.
How the calculator works functions:
- CAGR using Excels IRR: If you wish to assume the payment and receipts each month are made on the same date then you need not enter the dates of payment and receipts. However,I strongly suggest that you do.
- CAGR using Excels XIRR: In this case the dates of payments and receipts should be entered (along with amounts of course!).
- Observe the results!
Download the Chit Funds Returns Calculator
Use this calculator to
- advice your friends or clients not to use chit funds.
- think about the limitation of XIRR and IRR!
Bottom line: Do not enter into chit fund schemes looking for returns. It is one thing to get poor returns, quite another when you cannot even calculate them!
Reach your financial goals like a pro! Join our 1600+ Facebook Group on Portfolio Management! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community. The 1st lecture is free!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
About the Author
M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin
Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. We operate in a non-profit manner. All revenue is used only for expenses and for the future growth of the site. Follow us on Google News Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via Feedburner
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner
Your Ultimate Guide to Travel
This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps
- All calculators from our book, “You can be Rich Too” are now available on Google Play!
- Install the Financial Freedom App! (Google Play Store)
- Install Freefincal Retirement Planner App! (Google Play Store)
- Find out if you have enough to say "FU" to your employer (Google Play Store)
