Chit Fund Company and Registration Process

Chit funds are part of unorganised money market industry and a poplar way of saving in India. Simply put, Chit fund is an arrangement among group of people to contribute in a definite manner for definite periodic interval in form of a pool or a kitty.

People with limited access to banking find Chit Fund a great way of borrowing and saving money. A Chit Fund Company runs Chit funds. The article thus explain the how and why of Chit Funds, in addition to formalities required to get a Chit Fund business registered in India.

What is a Chit Fund Business Company?

The entity that manages the business of Chit Fund is known as the Chit Fund Company. The people taking part in the chit Fund scheme are known as the member or the subscriber. There are many Chit Fund schemes that are run by a Chit fund Company. There is specific number of people and duration to any chit Fund scheme.

How Does Chit Fund Business Work?

Let’s suppose 20 people come together in a group, wherein each contributes rupees 1000 every month for next 20 months. Amidst the group there will be an organiser who fixes all meetings, collects money and arranges for the procedures.

On a particular day all the 20 people will come together and deposit 1000 each. This will make a total of 20,000 every month. There will be a bid on the total money and lowest bid will win the Chit amount. But before the amount can be given there will be organiser charges deducted from the total amount which is approximately 5% of the total Chit amount.

Once the amount is taken by the person he is no longer eligible for bidding next time. This means only 19 people will be allowed to bid for money. The remaining amount is profit or Chit discount which is shared among the group. There are different kinds of Chit funds with there own working, but this is the basic business model of the Chit Fund.

Chit Fund Registration

The Chit Fund business is regulated by Chit Fund Act, 1982. According to the Act, a 'Chit' means a transaction which can be called chit, chit fund, chitty, kuri or by any other name or more specifically by the name entered into agreement with a specified number of persons. The agreement also entails the specific amount that shall be deposited by the subscriber in form of periodical instalments over a definite period of time.

Chit Fund companies are categorized under the NBFC (Non- Banking Financial Companies). They are exempted from being registered with the RBI (Reserve Bank of India). Chit Funds are regulated by other regulators and do not require be registered with RBI.

The promoters of the Chit Fund Company are required or recommended to start a Private Limited Company to start a Chit fund business in India. Once this Private Limited Company is incorporated the company can apply with relevant Chit Fund Registrar to obtain registration. Once relevant Chit Fund business registration is obtained from the state Registrar the Chit fund business can commence.

Chit Find Business registration will not be given to:-

  • Any person or entity convicted of any offence under the Chit Fund Act or under any other Act regulating Chit business and sentenced to imprisonment of any such offence.
  • Any person of entity who had defaulted in the payment of fees or the filing of any statement of record required to be paid or filed under this Act or had violated any of the provision of this Act or the rules made there under.
  • Any person or entity had been convicted of any offence involving moral turpitude and sentenced to imprisonment for any such offence unless a period of five years has elapsed since his release.

Related Articles

Search Companies