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A Study on Capital Budgeting


What is a Chit Fund?

Chit Fund is a saving scheme practiced in India. It originated 1000s of years
ago. It was started as informal association of traders and households with in
communities. It enables poor people to convert small savings into lump sums.

According to the definition given by Chit Funds Act 1982, Chit means a
transaction whether called chit, chit fund, chitty, kuri or by any other name by or
under which a person enters into an agreement with a specified number 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
Explanation:- A transaction is not a chit within the meaning of this clause, if in such
(i) some alone, but not all, of the subscribers get the prize amount without any
liability to pay future subscriptions; or

(ii) all the subscribers get the chit amount by turns with a liability to pay future

Acts Governing the Chit Funds in India are:

Union Government - Chit Funds Act 1982 (Except the State of Jammu and Kashmir)

 Kerala: Kerala Chitties Act 1975

 Tamil Nadu: Tamil Nadu Chit Funds Act, 1961

 Karnataka: The Chit Funds (Karnataka) Rules, 1983

 Andhra Pradesh: The Andhra Pradesh Chit Funds Act, 1971

 New Delhi: The Chit Funds Act,1982 and Delhi Chit Funds Rules, 2007

 Maharashtra: Maharashtra Chit Fund Act 1975

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Why people invest in Chit Funds?

 Easy to join as there is no formalities needed

 High Promised Return

 Option of small deposit

 High Liquidity

 Door to door collection by agents

What are different kinds of Chit Funds in India? Is Chit fund safe investment

There are 3 kinds of Chit funds in India

1. Chit funds run by State governments like Kerala State Financial Enterprises
and Mysore Sales International Ltd and PSU run Chit funds
2. There are registered Chit funds like Shriram chits etc which are run by big
business houses and are registered
3. Unregistered Chit funds, which are run on the basis of friendship and close
proximity of the members.

Chitfunds run by PSUs are the safest. The second safest is the one run by registered
ones. The least secured is the unregistered ones.
What should be done when some one you know approaches with high return Chit
fund? What are the checklist one should have while investing in Chitfunds?

1. Check if the Chitfund is registered or not. If registered, get the registration

2. Check if the certificate of Registration is genuine or not?
3. Find out if the new chit started by the chitfund is approved or not?
4. If you join the chit, you should ask yourself if one is able to continue to the
full term ie period of the chit is very important
5. Find out who are the promoters of the Chitfund?

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6. Find out if there is any compliant against the company/chitfund. If you have
access to internet, just do a Google search on the company

Facts and Figures of Chit Fund Business in India

 India has around 15,000 chit fund Groups/Companies

 In Kerala the State is running its own Chit Fund company named Kerala State
Financial Enterprise which has operations throughout the state.
 Out of the 15,000 chit fund companies/groups, only less than one percent run
it as professional business unit. Rest all work in unorganized setup.

 Chit Fund money is used by the investor in India is mainly used for marriage,
property purchase, Vehicles, Assets purchase, Consumer Non durable goods

The chit fund industry has sought exemption, or at least a lower slab, in the
upcoming GST regime. The taxation should be in a manner similar to other NBFCs, it
has said.

Chit funds are the Indian equivalent of the Rotating Savings and Credit
Association (ROSCA), which are popular throughout the world. There are more than
30,000 registered chit operators having an annual turnover exceeding 30,000 crore.
With the upcoming GST regime, where the indicated tax rates are upwards of the
service tax rates, the chances of this traditional industry winding up are high.

Stating this, the All India Association of Chit Funds said there is an urgent
need to bring an amendment to the Chit Fund Act, 1982. The amendment process
began five years ago with the setting up of a Key Advisory Group on Chit Funds by
the Centre, the Association said in a press release.

Also, the regulation of chit funds has significantly increased the transaction
costs, and since most of the costs have to be incurred for each additional member, the
regulations have pushed funds away from serving the poor, it added.

Chit fund is a traditional micro-saving cum borrowing product. It involves

participants pooling their money into a common fund on a monthly basis.
Withdrawals are made in lump-sum by a single member selected through a bidding
process every month. Every member of the group is entitled to the pooled money only

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once during the cycle of the scheme, post which the group is dissolved. The earliest
form of chit fund can be dated back to 19th century when the then ruler of the
princely state of Cochin, Raja Ravi Varma, gave loan to traders after keeping a part of
the loan for his administrative expenses. Despite the growth in financial savings
products, chit funds continue to attract a lot of investors across all socio-economic
classes. The main reason why chit funds continue to remain popular is because
participants have access to their future savings today. In other words, a chit fund
investor can access his to-be-saved funds in the present, when in dire need. This in
turn encourages disciplined saving among chit investors. At present, there are around
30,000 registered businesses in India, generating a yearly turnover of R35,000 crore.
There are also non-registered chit fund businesses, estimated to be 100 times the size
of registered businesses.

Even though common perception is that chit fund is an unregulated product, in

truth, it is an over-regulated industry. It is guided by the Central Chit Fund Act, 1982
and Section 45 (1) of the Reserve Bank of India Act, 1934, while the administration
of chit fund falls under the ambit of the state government where the business is
located. Section 89 of the Central Act also empowers the state governments to make
rules in consultation with RBI, to give effect to the provisions of the Act. For states
without a chit fund legislation, chit businesses are by default governed by the Central
Chit Fund Act. So, the obvious question that arises is that despite the existence of so
many regulations, why do chit funds scams continue to occur?
The truth is that most of the commonly cited scams are in fact not chit funds at
all. The Saradha scam unleashed itself on the common public, turning out to be the
biggest ponzi scheme to have happened in the annals of this country. The media and
the common public took no time to paint chit fund companies with the same brush as
that of Saradha, completely ignoring the fact that the Saradha group was not even a
chit fund business. While chit funds are classified as NBFC (miscellaneous) and are
banned from accepting deposits from public by RBI; Saradha Group was a Residuary
Non-Banking Finance Company (RNBFC) that accepted deposits from people on the
pretext of awarding them with residential flats on maturity. To an average individual,
it was not even known that Saradha was not a chit fund company. The Rose Valley
Group Scam, another ponzi scheme reported to be seven times the size of Saradha,
was no different. Another common misconception has been associating registered chit

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funds with prize chits. Prize chits were banned under The Prize Chits and Money
Circulation Schemes (Banning) Act way back in 1978. Under the prize chit scheme
the promoter used to collect deposits, in whole or in instalments, by way of
subscription or membership fee. The collected money was further utilised to award a
randomly selected person from the scheme with prize in cash or kind. In such
schemes, the prize winner was not mandatorily under a liability to make further
payments after he/she won a prize.

Finance ministry did in fact set up the Key Advisory Group (KAG) on Chit
Fund in 2011. The evaluation by the KAG brought forth a whole set of
recommendations. First, the KAG suggested immediate revision of the 1982 Act,
including tightening of prudential norms. The Chit Fund Act of 1982 is loosely based
on the Cochin Kuries Act of 1932 making it almost a century-old law. Second, the
creation of a self-regulatory organisation was recommended, much like the Institute of
Chartered Accountants of India (ICAI) and the Association of Mutual Funds in India
(AMFI). This would increase transparency, advocate best practices, generate investor
awareness and improve investor protection measures. Third, the group suggested the
need for an independent advisory committee to coordinate between the multiple
Chit fund is an excellent tool to promote financial inclusion, if channelised in
the right format. And unless the government takes some proactive initiatives, an age
old, tried and tested mechanism of micro-saving and micro-borrowing will be erased.
Yet, policymakers seem to view chit funds with a certain degree of repugnance.
Archaic legislations have made it impossible for the chit fund industry to adopt
technology and move to a system of e-auctions and e-payments because of the
insistence of “physical presence” required as per Sections 16 of the Central Chit Fund
It is high time that policymakers review their apathy for the chit fund industry
to redesign and modernise the legislation that regulates this widely spread financial
practice. Otherwise, the day is not far when another Saradha or Rose Valley will erupt
only to be unfairly branded as a chit fund scam!

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Small Savings Grow big through Kapil Chits

Kapil Chit Funds Private Limited was incorporated under Companies Act in
1981 and has been in the chit fund business for over 31 years. The Company and its
subsidiaries popularly known as “Kapil Chits.” It is one of the largest registered chit
fund company having over 450 offices; over 18,000 persons are gainfully employed
with an annual chit auction turnover exceeding Rs 3,700 crores and has over 7,00,000
satisfied customers as on July 2014.

Kapil Chit Funds Private Limited is the flagship company of the Kapil Group.
‘Kapil Group’ is a conglomerate of over thirty companies managed or owned by Mr.
K. Vaman Rao, Chartered Accountant, his family members and associates. The group
is involved in Chit Funds (Asset Management), Development of lay-out for residential
/ commercial buildings, Construction, Hotels and serviced apartment, Finance
(NBFC), Information technology, Television (news channel), Newspaper, Bakery
(factories), Manufacture of PP / HM bags, Printing press, Corporate Insurance
Agency, Health and wellness therapy centers, Ayurvedic hospital, Cancer hospital
(non-profit), Horticulture, Cultivation of vegetables, Diary, Poultry, Sheep / goat
rearing, Telecom infrastructure services, Travel agency, Overseas money transfer
agents and Distribution of home / office appliances, health products etc.,

As the number of branches, people handling the operations and auction

turnover increased, the management for operational reasons and also with a view to
create promotional avenues for the staff who have made this growth possible, started
the following four wholly owned subsidiary companies and each company operates
within specific geographical area;

 Kapil Chits (Hyderabad) Pvt Ltd

 Kapil Chits (Kosta) Pvt Ltd
 Kapil Chits (Kakatiya) Pvt Ltd
 Kapil Chits (Karnataka) Pvt Ltd

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Registered Chit fund companies are primarily regulated by the Central Chit
Fund Act and also has to comply with prescribed rules and regulation formulated by
the respective state governments.

As per the existing law, the foreman (Chit Fund Company) has to deposit
100% of the chit value with the Registrar of Chits prior to the commencement of the
chit group. All accounts have to be audited by a qualified Chartered Accountant.
Every group run by kapil chits is registered and all regulations are followed.

Kapil chits is backed by its seasoned team of professionals who have decades
of experience and can understand any query related to chits and can help you reap
maximum benefits from investing in a chit. With over 30 years of experience in Chit
business, it is the safest, most reliable and trustworthy company to make your chit
related investments.

Chit Funds is a high risk low margin business. There have been many fly by
night operators who have tarnished the image of this business sector. So when
choosing to save and invest in chits, it is important to take an informed decision and
invest only with companies who have a reliable track record. Since inception, honesty
and transparency have been inbuilt into the DNA of our company. We enjoy a lot of
goodwill in the markets we operate in and we guard our reputation closely. Over the
past few decades, we have fulfilled our obligation towards customers by providing
them honest, trustworthy and reliable service. It gives us great pleasure to have
fulfilled the aspirations of our employees, who have grown with the company.

The concept of chit funds is indigenous to India and originated more than
1000 years ago. Initially it was in the form of an informal association of traders and
households within communities, wherein the members contributed some money in
return for an accumulated sum at the end of the tenure.

It is a mechanism that combines borrowing and savings in a single scheme. In

a chit fund scheme , a group of individuals come together for a pre-determined time
period and contribute to a common pool at regular intervals. Every month, up until the
end of the tenure of the scheme, the collected pool of money is loaned out internally

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through a bidding mechanism to the most deserving member. This way, people who
are in need of funds and those who want to save are able to meet their requirements.

Chit funds are equivalent of the Rotating Savings and Credit Associations
(ROSCA) that are famous throughout the world. ROSCAs are a means to "save and
borrow" simultaneously. It is considered one of the best instruments to cater to the
needs of a customer. It enables people to convert their small savings into lump sums.


Mr. K. Vaman Rao

A Chartered Accountant by profession Mr Vaman Rao is the founder Director of

Kapil Chit Funds Pvt Ltd. The Kapil Group is his brainchild. It is steeped with strong
values and business ethics. His business efforts are driven as much to create jobs and
contribute positively to global society as they are to create a successful independent

Mr. U. Krishna Mohan

Mr. Krishnamohan has been with Kapil Chits for over 25 years and has risen ranks to
hold the topmost position in the company. He is the Managing Director of Kapil Chit
funds Pvt. From 1-1-2004 to 17-3-2008 he played a very important role, by elevating
the company to a much higher level by consolidating the activities and pushing the
company onto a faster pace of growth.

M. Venkata Lakshmi

A founder member of Kapil Chit funds. She laid down the procedures for setting up
our chit fund business. She has been with us since inception.

G. Komal Reddy

Bachelors in Commerce degree (B.Com) paved the entry of Mr.G.Komal Reddy into
Kapil Chits. He joined the company as a Collection Executive and has risen through
the ranks to become the Managing Director of Kapil Chits (Kakatiya) Pvt. Ltd.

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D. Vishnuvardhan Rao

A Graduate with Bachelors in Arts (BA), Mr.Vishnuvardhan Rao has shown

tremendous leadership skills and has risen through the ranks. He is currently the
Managing Director, Kapil Chits (Hyderabad) Pvt. Ltd.

K. Dayanandam

Prior to joining Kapil Chits, Mr.Dayanandam worked with Sriram Chits. He is today
the Managing Director of Kapil Chits (Karnataka) Pvt. Ltd. In spite of being a born
and bred telugu, in a short span of time, he learnt Kannada and can fluently converse
in Kannada which is in tandem with his current designation.

J. Raj Kumar

Mr Kumar is currently the Managing Director of Kapil Chits (Kosta) Pvt. Ltd. He
joined the company in 1998 and has since risen through to ranks through sheer hard
work and dedication.

1981-1991 – Laying the foundation

Kapil Chit Funds commenced business on May 03, 1981.

Kapil Chit Funds constructed its own office building in 1981 in karimnagar town
where its registered office is also located.

In January, 1986, Kapil Chit Funds opened its second branch at Mayur Kushal
Complex Abids, Hyderabad

The company was slowly expanding. Here’s a list of branches that were opened
during this period.

June, 1990: Hanamkonda

1991: Suryapet and Kharkhana

The first decade of operations was spent in putting systems in place, identifying and
training manpower and slowly but steadily laying a strong foundation for the future

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The auction turnover for this period increased from 600,000 (six hundred thousand) in
1981 to 43,320,000 (Forty three million, three hundred and twenty thousand) in
March 1991.

1991-2001 - Expansion

While the first decade was spent in laying the foundation, the second decade was
the decade of expansion.

Kapil Chit Funds started branches in

1992: Khammam

1994: Kukatpally

1995: Eluru

1996: Mancherial and Dilshuknagar

1997: Warangal

1998: S.D Road, Mettuguda, Kothagudem, Huzurabad, and Rampur

1999: Santoshnagar, Nalgonda, Machilipatnam, and Godavarikhani

2000: Jagityal, Nirmal, Mahabubabad, Kazipet, Ashoknagar, and Ameerpet

The year 2000 was also a transformational year for the company. There were
new management practices and changes in hiring and promotion policies. Until now

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all high level management posts were filled internally. The company started hiring
external talent to fill up middle management positions.

The auction turnover during this period grew from 59,400,000 (Fifty Nine
Million Four Hundred thousand) as on March 1992 to 899,520,000 (Eight Hundred
and ninty nine million, Five Hundred and twenty thousand) as on March 2001

2001-2010 – Expansion and Consolidation

Kapil Chit Funds witnessed tremendous growth during this decade. The company
established itself in Andhra and Rayalseema regions.

Here’s a list of branches that were opened during this period.

2001: Kushaiguda, Vishakapatnam, Vinayaknagar, Sangareddy and Gudiwada

2002: Jangaon, Siddipet, Miryalguda, BHEL, Kamareddy and Kodad

2003: Guntur, Vijayawada and Boopalpally

2004 witnessed phenomenal growth as 35 new branches were opened in locations

such as Orugallu, NAD Vizag, Garimella, Prodattur, Vikarabad, Habsiguda,
Mankammatotha, Cuddappa, Khairthabad, Kakinada, Chirala, Srikakulam, Tirupathi,
Vijayanagaram, Rajamundry, Nellore, Tenali, Ongole, Ponnuru, Amalapuram,
Adilabad, Kurnool, Anakapalli, Hindupur, Narsaraopet, Bhimvaram, Ananthapur,
Gudur, Kavali, Nandyal, Nuzuvid, Rajampet, Palasa, Bodhan and Vijayawada-2.

In 2005, branches were opened in Mahabubnagar, MVP Colony, Bongir, Macharla,

Jangareddy gudem, Adoni, Rajam and Badvel.

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In the year 2008, in order to better monitor the expanding business and also to
provide promotional avenues to the staff who have made the growth a reality, the
management of Kapil Chit funds Pvt ltd decided to continue fresh chit business
through its subsidiary companies mentioned below and eventually Kapil Chit Funds
Pvt ltd would become the holding company of the Kapil Group of companies.

 Kapil Chits (Karnataka) Pvt Ltd was started on 3rd July 2006 with its first
branch in Bangalore
 Kapil Chits (Hyderabad) Pvt Ltd
 Kapil Chits (Kosta ) Pvt Ltd was started on 29th August 2008
 Kapil Chits (Kakatiya) Pvt Ltd was started on 9th September 2008

The auction turnover reflects the tremendous growth that this decade saw.
Auction turnover grew from 1,043,640,000 (One billion, Forty three million, Six
hundred and forty thousand) as on March 2002 to 16,365,600,000 (Sixteen Billion,
Three hundred and sixty five million, Six hundred thousand)

2012 – 2013

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We are one of the top Chit fund company in Andhra Pradesh. We are well
established, trusted by our customers and associates. We continue to grow with time
tested values and ethics which are a part of our corporate culture.

There is a Tremendous growth of Turnover in the year 2012-2013. Auction

turnover for the year 2012 is 2,070,235,000 and 2013 is 2,506,560,000.


Now the latest reports show that our position and stability are stronger than
ever with the total turnover being 3459.12 Crores with the number of branches being

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Save Money

Saving and Investing is a lifelong process. The sooner you start; the
better off you'll be in the long run. It's best to start saving and
investing as soon as you start earning money. The discipline and
skills you learn will benefit you for the rest of your life. But no matter
how old you are when you start thinking seriously about saving and investing, it's
never too late to begin. Plan your finances such that you meet every contingent
expense without feeling pressured. Join Kapil Chits today.

Borrow Money

A chit is the only financial product that allows you to save and
borrow. Be smart; avoid the pitfalls of borrowing at exorbitant costs
from money lenders and other financial channels. Borrow at lower
rates with lesser hassles. Join Kapil Chits today.

Choose Wisely

In whose hands you put your hard-earned money matters. Kapil Chits
is a registered Chit fund operating for over 31 years in the chit fund
sector. Kapil chits is your trustworthy, safe and reliable companion to
help you reap maximum benefits from investing in a chits. The
activities of the company are monitored by government officials through the chit fund
Act of 1982. Kapil chits is backed by its competent and seasoned team who have
decades of experience. Start your journey towards financial freedom. Join Kapil Chits

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