“We are asking our investors to buy LIC schemes as these can be used as collateral for their future investments also,” adds Shivalingappa. Chit funds' entrance into product distribution has stimulated mutual funds more than insurance companies.

"Any type of addition in distribution will help the industry in a big way; chit fund companies, with their mass customer base, could be the next level distributors for mutual funds," said Srinivas Jain, CMO of SBI Mutual Fund.

"The question now is how to prepare them to sell funds. The need of the hour is to first train them and get them AMFI-certified," Jain added.

"Diversifying into financial product distribution is not a healthy practice. A chitster should focus on its chit-fund business. Service delivery of a chitster will be impacted if he moves to other businesses," said Kamal Bambhani, Proprietor of Chandra Lakshmi Chits Funds.