Chit Fund


As per one definition, a chit fund company is the one which manages, conducts or supervises, as foremen, agent or in any other capacity, chits as defined in Section 2 of the Chit Funds Act, 1982. Such schemes can be conducted by organised financial institutions or may be unorganised schemes between friends and/or relatives.

According to Section 2(b) of the Chit Fund Act, 1982, "Chit means a transaction whether called chit, chit fund, chitty, committee, kuri or by any other name by or under which a person enters into an agreement with a specified of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical installments over a definite period and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount"
Chit Funds can be misused by its promoters and there are many several instances of people sunning such Ponzi schemes and then absconding with investor’s money.

Example: 25 subscribers agree to subscribe an amount of Rs.4,000/- for 25 months i.e. for a total chit value of Rs.1,00,000/-, each subscriber will get his chit amount in his turn as determined by draw of lot or by auction. During auction all non-prized subscribers bid by allowing percentage of subscription to be forgone. The highest bidder i.e. who allows maximum percentage to subscribers is given the chit amount. The amount, foregone by the subscriber is distributed as dividend amongst all the subscribers in every draw, after deducting 5% commission/remuneration to be paid to the foreman of the company. Maximum bid is normally between 20% to 40% and the duration of chit is normally between 12 months to 50 months. In case there are more than one highest bidder in an auction, then draw of lots is made and chit amount given to the successful subscriber.

These 25 subscribers constitute a Chit Group” and the chit fund company can run many such groups. For each chit group, previous sanction, registration of chit agreements and commencement certificate from the office the Registrar, Chit Funds, is a must. The share of a subscriber in a chit is also known as ticket.

The Chit Fund Department was has been set up by the Delhi Government with the main objective of controlling the activities of chit fund companies of Delhi through the Madras Chit Funds Act,1961 extended to Delhi and the Delhi Chit Fund Rules, 1964. Chit commenced w.e.f. Ist April,2007 shall be regulated under the provisions of The Chit Funds Act,1982 and Delhi Chit Funds Rules, 2007.
Shriram Chits is the largest Chit Funds entity in India. Saradha Group, which had started its chit fund business in the state in early 2000's had interests in realty, tours and travel and media besides other segments. Its chairman Sudipto Sen, had started out as a small time property dealer in the late 1990's, reports suggest.

The Securities and Exchange Board of India (Sebi) has initiated a probe into the activities of the beleaguered Saradha Group in West Bengal, which had collected crores of rupees promising higher-than-average returns before shutting down. Sebi will investigate whether Saradha’s fund-raising business was within the Collective Investment Scheme (CIS) regulations.

Friday, 08th Apr 2016, 11:50:42 PM

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