Chit-Funds are a popular mode of saving cum borrowing from time immemorial. The concept of Chit Fund is based upon the principal of mutuality, whereby a group of persons participate in a scheme to contribute fixed periodical amounts and distribute the amount so collected, in rotation, to each of the participants. The chit fund company collects specific periodic subscriptions from each member of a chit group. The total of the periodic subscriptions, minus company commission, is given out periodically as bid amounts or prized money/amount to any one member of the chit group, identified by either a lot or auction.
The number of periodical instalments will be equal to the number of subscribers in a chit group. Each subscriber will receive the bid amount or prized / money amount only during the chit period.
Sailent Features of the Chit Fund Act 1982
- No person, firm or company can operate chits without obtaining a 'Sanctioned Order' from the register of Chits.
- The company conducting the chits must deposit by way of Fixed Deposit with the Registrar of Chits an amount equal to the Chit value proposed to be conducted by it. Only then permission to start the Chit Group will be granted.
- There is ceiling of Bid / Auction for the chit to a maximum of 40% percent of the Chit Value & minimum of 5% percent.
- The Registrar of chits is a supervisory body which controls and governs the operation of Chits
- The various section of the Chit fund Act clearly defines all aspects of operation of chits and hence there is no possibility of loopholes, contravening or circumventing the Chit Fund Act.
- Along with the control executed by the Registrar of Chits, the Registrar of Companies & Reserve Bank of India also have control and regulatory laws to check unlawful activities of unscrupulous operators.
- The maximum commission permitted to Chit operators is limited to only 5% percent as per Chit Fund Act 1982
Security for Money
A Registered Chit Fund Company makes a Security deposit equal to 100% of chit value in a Schedule Bank as FDR, which is pledged in favor of registrar of chits. Therefore, a member in a registered Chit Fund Company is very much secured than a member in a non-registered company.
- Chit amount starts from Rs.25000 to Rs. 10,00,000
- Monthly installment starts from Rs.1250 to Rs.50000
- Daily payment starts from Rs.50 to Rs.2000
New chit groups starting with prior sanction from the district registrar of chits under the central chit fund act 1982 and tamilnadu chit fund rules 1984.