CHIT FUND IS IT AN INVESTMENT DESTINY

SEMESTER VI
A project Submitted to
University of Mumbai for the partial completion of the degree of
BACHELOR OF MANAGEMENT STUDIES
Under the Faculty of Commerce

SUBMITTED BY

SOMNATH MARUTI KATKE

ROLL NO. 62026

UNDER THE GUIDANCE OF

PROF.BHAVIKA PATEL

TILAK COLLEGE OF SCIENCE AND COMMERCE

VASHI, NAVI MUMBAI

MARCH 2024
CHIT FUND IS IT AN INVESTMENT DESTINY

SEMSTER VI

A Project Submitted to

University of Mumbai for the partial completion of the

Degree of

BACHELOR OF MANAGEMENT STUDIES

Under the Faculty of Commerce

SUBMITTED BY
SOMNATH KATKE
ROLL NO. 62026

UNDER THE GUIDANCE OF

PROF: BHAVIKA PATEL

TILAK COLLEGE OF SCIENCE AND COMMERCE

VASHI, NAVI MUMBAI
MARCH 2024
 Declaration

I the undersigned Miss/Mr. SOMNATH KATKE hereby

declare that the work embodied in this project work titled

“CHIT FUND IS IT AN INVESTMENT DESTINY ”

, forms my own contribution to the research work carried out under the

guidance of Prof. BHAVIKA PATEL is a result of my own research

work and has not been previously submitted to any other university for any

other degree/diploma to this or any other university.

Wherever reference has been made to previous work of other, it has been

clearly indicated as such and included in the bibliography.

I, here by further declare that all information of this document has been

obtained and presented in accordance with academics’ rules and ethical

conduct.

SOMNATH KATKE

Certified by

PROF: BHAVIKA PATEL

 ACKNOWLEDGEMENT
To list who all have helped me is difficult because they are so numerous and the
depth is so enormous.

I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to
do this project.

I would like to thank my Principal, Dr. Anita Joshi, for providing the necessary
facilities required for completion of this project.

I would also like to express my sincere gratitude towards my project guide

Prof. BHAVIKA PATEL whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference
books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly
helped me in the completion of the project especially my Parents and Peers who
supported me throughout my project.

(SOMNATH KATKE)
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 CHIT FUND IS IT AN
INVESTMENT DESTINY
 CHAPTER 1
INTRODUCTION
 DEFINATION

A chit fund is a financial arrangement where a group of individuals comes together to pool their
money through regular contributions. Participants contribute a fixed amount at regular intervals,
forming a collective fund. The total fund is then disbursed periodically among the participants
through a process of auction, where one member is designated as the winner and receives the
pooled amount. Chit funds are often used for savings, credit, and investment purposes, providing
a community-based approach to financial management. Regulatory frameworks in various
countries oversee chit funds to ensure transparency and protect the interests of participants.

HISTORY OF CHIT FUND

The history of chit funds dates back several centuries and spans various cultures, demonstrating
the widespread and enduring nature of this financial arrangement. While the specifics may vary
across regions, here is a general overview of the history of chit funds:

Ancient Practices:
Chit funds have ancient roots and can be traced back to traditional economic practices in
civilizations such as India, China, and the Middle East.
In India, historical texts mention informal financial arrangements resembling chit funds.

India's Chit Fund System:

The modern form of chit funds is strongly associated with India, where they are deeply ingrained
in the financial culture.
Chit funds, known as "kuries" in Kerala and "chits" in other regions, have been used for
centuries as a means of community savings, credit, and investment.

1
Middle Eastern Influence:
Chit fund-like arrangements have also been observed in Middle Eastern cultures, where
they were used as a form of community financing for various purposes.

Europe and Western Chit Funds:

Informal rotating savings and credit associations, resembling chit funds, have been
documented in some European communities.
However, the formalization of chit funds as a financial instrument has been more prominent
in Asia.

19th Century Formalization:

Chit funds began to take on more formal structures in the 19th century, with the
establishment of rules and regulations governing their operations.
In India, the Chit Funds Act of 1912 was enacted to provide legal recognition and
regulation for chit funds.

Evolution and Global Spread:

Chit funds have evolved over time, adapting to changing economic landscapes and
incorporating technology for enhanced operations.
The concept of chit funds has spread to various countries, with each region adopting its own
variations and regulations.

2
 HOW CHIT FUND WORKS

A chit fund is a unique financial arrangement that combines elements of savings and
borrowing within a group of individuals. Here's a brief introduction on how a chit fund
works:

Formation of the Group: A group of individuals, often friends, family members, or

colleagues, come together to form a chit fund. This group is usually organized by a
promoter or a chit fund company.

Monthly Contributions: Each member of the chit fund agrees to contribute a fixed amount
of money regularly, usually on a monthly basis. The total pool of money is then distributed
among the members.

Rotational Auctions: Every month, a chit fund conducts a meeting where an auction takes
place. Members bid for the total collected amount, and the highest bidder receives the
money. The bidding process is usually competitive, as members try to maximize their
returns.

Prize Money and Deductions: The highest bidder receives the collected funds, minus a
predetermined commission for the chit fund company or promoter. The remaining amount
is distributed among the other members. The process continues until each member has
received their share of the pool.

Borrowing Opportunity: Members who are in need of funds can opt to bid higher during
the auction to receive the money earlier than their turn in the sequence. This provides a
borrowing mechanism within the chit fund.

3
Chit funds provide a way for individuals to save money, access funds in times of need, and
build a sense of financial community. However, participants should be cautious and ensure that
the chit fund they join is regulated and operates transparently to avoid potential risks. The chit
fund is organized and managed by a chit fund company or a trusted individual, known as the
chit fund manager.

The group collectively decides on the frequency and amount of contributions, as well as the
duration of the chit fund cycle. The cycle typically consists of a series of monthly contributions,
with each participant taking turns to receive the total pool of funds, known as the "chit amount"
or "prize amount."

Participants may choose to join a chit fund for various reasons, such as meeting short-term
financial needs, saving for a specific goal, or accessing credit without relying on formal
financial institutions. Chit funds are often utilized by individuals who may have limited access
to banking services or prefer a more community-based approach to financial management.

While chit funds can provide financial flexibility and a sense of community, they also come
with certain risks. Participants should ensure the legitimacy and reliability of the chit fund
manager and adhere to the agreed-upon rules to avoid potential issues. Regulatory authorities in
some countries oversee chit funds to protect participants and maintain the integrity of the
system.

4
STRUCTURE AND PARTICIPANTS

All participants who contribute regularly to the chit fund.

Provide the pool of funds that will be distributed among participants

Participants in a Chit Fund:

Bidder:
A participant who actively bids for the chit amount during the auction.
Willing to accept a lower payout in exchange for early access to the funds.

Non-Bidding Participants:
Participants who do not bid during a particular chit fund cycle.
Continue making regular contributions but do not actively participate in auctions.

Winner:
The participant who bids the highest and is awarded the chit amount.
Receives the funds and may choose to continue contributing or exit the chit fund.

Contributors:
All participants who contribute regularly to the chit fund.
Provide the pool of funds that will be distributed among participants .

5
Chit Fund Cycle:
Enrollment:

Participants join the chit fund at the beginning of a new cycle.

Agree on the contribution amount, frequency, and the duration of the chit fund.
Auction:

Conducted at each meeting, where participants bid for the chit amount.
The winning bidder receives the chit amount, and the auction continues until all
participants have won.
Contribution Period:

Regular monthly contributions from all participants continue throughout the cycle.
Non-bidding participants contribute without participating in auctions.
Prize Distribution:

Participants who have won the auction receive the chit amount.
The cycle continues until all participants have received the chit amount once.
Closure:

The chit fund cycle concludes when all participants have received the chit amount.
Participants may choose to enroll in a new cycle or exit the chit fund.

6
 THE CHIT FUND MANAGER’S ROLE

The chit fund manager plays a pivotal role in the efficient functioning and management of a chit
fund. Their responsibilities include overseeing the entire chit fund process, maintaining legal
compliance, and ensuring a fair and transparent operation. Here are the key aspects of the chit
fund manager's role:

Regulatory Compliance:
Ensure that the chit fund operates in compliance with relevant laws and regulations.
Obtain necessary licenses and approvals from regulatory authorities.
Keep abreast of any changes in regulations that may affect the chit fund.

Documentation and Record Keeping:

Maintain accurate records of all transactions, including contributions, auction proceedings, and
disbursements.
Prepare and provide participants with receipts, agreements, and other necessary documents.
Ensure transparency and accessibility of records for all participants.

Conducting Auctions:
Organize and conduct regular auctions as per the chit fund cycle.
Facilitate a fair and transparent bidding process.
Enforce rules and regulations during auctions to maintain order and integrity.

Communication with Participants:

Communicate effectively with all participants, providing information about upcoming auctions,
contribution schedules, and other relevant updates.
Address participant queries, concerns, and grievances promptly and transparently

7
Risk Mitigation:
Implement risk management strategies to minimize the chances of fraud or default.
Verify the creditworthiness and reliability of participants.
Take appropriate measures to address non-compliance or default by participants.

Collection and Disbursement:

Oversee the collection of regular contributions from participants.
Facilitate the disbursement of the chit amount to the winning bidder after each
auction.
Ensure that all financial transactions are conducted securely.

Educating Participants:
Provide information to participants about the chit fund process, rules, and
regulations.
Educate participants about their rights and responsibilities within the chit fund.

Legal and Ethical Standards:

Uphold ethical standards in all chit fund operations.
Ensure that the chit fund follows legal and ethical practices to maintain trust and
credibility.

8
 CONTRIBUTION AND PAYOUT MECHANISM OF CHIT FUND

contribution and payout mechanism in a chit fund is a systematic process that ensures fair
participation, regular contributions, and timely disbursement of funds to the participants.
Here's an overview of the contribution and payout mechanism in a typical chit fund:

1. Contribution Mechanism:

Enrollment:
Participants join the chit fund at the beginning of a new cycle.
Agree on the total amount of the chit, the contribution frequency (usually monthly), and the
duration of the chit fund cycle.

Monthly Contributions:
Participants contribute a fixed amount of money each month, as agreed upon at the time of
enrollment.
The total monthly contributions from all participants form the chit fund pool.

Collection by the Foreman:

A designated foreman or chit fund representative collects the monthly contributions from
participants.
The foreman ensures that all participants contribute their agreed-upon amount on time.

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 Payout Mechanism

Auction Process:

At each scheduled meeting, an auction is conducted among the participants.

Participants have the opportunity to bid for the total chit fund amount, often expressing the
amount they are willing to forego for early access to the funds.

Bid Winner:
The participant who bids the highest amount is declared the winner of the auction.
The winning bidder receives the total chit fund amount, minus any applicable deductions
or charges.

Disbursement to the Winner:

The chit fund manager or foreman disburses the chit amount to the winning participant.
This amount can be used for various purposes, such as meeting financial needs, making
investments, or addressing emergencies.

Adjustment for Contributions:

The winning participant's future contributions may be adjusted to reflect the chit amount
received.
This ensures that the participant continues to contribute to the chit fund for the remaining
duration of the cycle.

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 TYPES OF CHIT FUND

Chit funds come in various forms, catering to different needs and preferences of participants.
Here are the common types of chit funds:

Traditional Chit Funds:

These are the most basic and common type of chit funds.
Participants join a chit fund group, contribute a fixed amount regularly, and bid for the chit
amount in monthly auctions.

Online Chit Funds:

Utilizes digital platforms and technology to conduct chit fund operations.
Participants may join and manage chit funds through online portals or mobile applications,
enhancing accessibility and convenience.

Prize Chits:
Focuses on providing a lump sum amount (prize) to a single participant in each cycle.
Participants bid for the prize amount, and the highest bidder receives the lump sum.
Dividend Chits:

Designed to provide periodic dividends to participants rather than a lump sum amount.
Participants bid for a share of the monthly dividend, and the highest bidder receives the
dividend for that cycle.

Foreman-based Chit Funds:

Involves a foreman who organizes and manages the chit fund.
The foreman may play a more active role in decision-making and may also contribute to the
chit fund.

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Non-Prized Chit Funds:
Participants contribute regularly, but there is no bidding for a lump sum amount.
The total chit fund amount is distributed among participants according to a
predetermined schedule.

Rotating Savings and Credit Associations (ROSCAs):

Similar to chit funds, participants contribute regularly, and one member receives
the pooled amount in a rotating manner.
ROSCAs are often informal and can be organized among friends, family, or
colleagues.

Investment Chits:
Participants contribute with the intention of using the pooled funds for investment
purposes.
The group may collectively decide on investment opportunities or allow individual
members to use the funds for their investment projects.

Microfinance Chits:
Focuses on financial inclusion and providing credit to individuals who may not have
access to traditional banking.
Operates in a manner similar to traditional chit funds but with a social and
developmental perspective.

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Microfinance Chits:

Focuses on financial inclusion and providing credit to individuals who may not have access to
traditional banking.
Operates in a manner similar to traditional chit funds but with a social and developmental
perspective.

Hybrid Chit Funds:

Combines elements of different types of chit funds to cater to specific requirements.
May incorporate features from both traditional and online chit funds or blend aspects of prized
and non-prized chit funds.
It's important to note that the structure and regulations of chit funds can vary by region and
country. Regulatory authorities may have different classifications and guidelines governing the
operation of chit funds in different jurisdictions. Participants should carefully understand the
type of chit fund they are joining and be aware of the rules and regulations governing its
operation.

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REGULATORY FRAMEWORK OF CHIT FUND

Chit funds are financial arrangements where a group of individuals comes together to contribute
money periodically, and each member gets a lump sum amount in rotation. These funds are typically
regulated by the government to protect the interests of the participants and ensure fair and transparent
operations. The regulatory framework for chit funds can vary from country to country, and within a
country, it may be subject to state or regional regulations. Below are some general aspects of the
regulatory framework for chit funds:

Registration and Regulation:

Chit funds are usually required to register with the relevant regulatory authorities. This could be a
central banking institution or a state government agency, depending on the jurisdiction.
Regulatory bodies may prescribe rules and regulations regarding the formation, management, and
dissolution of chit funds.

Prudential Norms:
Regulatory authorities often set prudential norms to ensure the financial stability and
integrity of chit funds.
These norms may include guidelines on the minimum capital requirements, investment
limits, and permissible activities of chit funds.

Disclosure and Transparency:

Chit funds are usually required to provide comprehensive information to their members
regarding the terms and conditions, rights, and obligations.
Regular reporting to regulatory authorities may also be mandatory to ensure transparency in
the operations of chit funds.

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Code of Conduct:
Regulatory bodies may establish a code of conduct for chit fund operators, outlining
ethical standards and business practices.

Investor Protection:
Regulatory frameworks aim to protect the interests of chit fund participants. This may
involve setting limits on the amount that can be collected, ensuring fair auction processes,
and prohibiting fraudulent practices.

Enforcement and Penalties:

Authorities typically have the power to enforce compliance with regulations and may
impose penalties or take legal action against chit funds found to be operating in violation
of the prescribed rules.

It is important to note that the specific regulatory framework for chit funds can vary
widely, and individuals involved in or considering participation in a chit fund should be
aware of the laws and regulations applicable in their respective jurisdictions.
Additionally, the regulatory landscape may evolve over time, so it's essential to stay
updated on any changes in regulations related to chit funds.

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REGULORY AUTHORITIES OVERSEEING CHIT FUND

Regulatory authorities overseeing chit funds can vary from country to country and may even be
subject to regional or state-level regulations within a country. Below are some examples of
regulatory bodies that oversee chit funds in certain jurisdictions:

India:
In India, chit funds are regulated by both state and central authorities. At the state level, the
Registrar of Chits is responsible for regulating chit funds. At the central level, the Reserve Bank
of India (RBI) oversees certain aspects of chit fund operations to ensure financial stability.
United Kingdom:
In the United Kingdom, chit funds may be subject to the oversight of the Financial Conduct
Authority (FCA), which regulates various financial services and products to protect consumers
and maintain the integrity of the financial system.

United States:
Chit funds or similar arrangements in the United States may be subject to state-level regulations,
as financial regulations often fall under state jurisdictions. The Securities and Exchange
Commission (SEC) at the federal level may also have oversight if the arrangements involve
securities.

Singapore:
n Singapore, chit funds may be regulated by the Monetary Authority of Singapore (MAS), which
oversees financial institutions and markets to ensure stability and protect the interests of
consumers.

United Arab Emirates:

In the United Arab Emirates, regulatory oversight of chit funds may be carried out by the
relevant financial regulatory authority, depending on the emirate or jurisdiction.

16

.
 COMPLIANCE AND DOCUMENTAION OF CHIT FUND

Compliance and documentation are crucial aspects of chit funds to ensure transparency,
legal adherence, and the protection of the interests of participants. The specific
requirements may vary based on the regulatory framework in a particular jurisdiction, but
here are some common elements of compliance and documentation for chit funds:

Registration:
Chit funds are typically required to register with the relevant regulatory authorities. This
involves submitting necessary documents and information about the entity's structure,
objectives, and operations.

Constitution and Bye-Laws:

Chit funds should have a clearly defined constitution and bye-laws that outline the
purpose, structure, and functioning of the chit. These documents may cover membership

criteria, contribution amounts, bidding processes, and other operational details.

Participant Agreement:
Participants in the chit fund are usually required to sign a formal agreement that outlines
their rights, responsibilities, and obligations. This document may include details about the
chit's duration, contribution amounts, penalty provisions, and the process for bidding and
receiving funds.

Financial Statements:
Chit funds are typically required to maintain and periodically submit financial statements
to regulatory authorities. These statements should provide a clear picture of the fund's
financial health, including income, expenses, assets, and liabilities.
17

.
Auction Records:
Detailed records of chit fund auctions should be maintained. This includes documentation of
each auction, the bids received, the winning bid, and the participants involved. This helps
ensure transparency in the distribution of funds.

Compliance with Prudential Norms:

Chit funds are often subject to prudential norms set by regulatory authorities. Compliance
with these norms, such as minimum capital requirements and investment limits, should be
documented and reported to the relevant authorities

Disclosure Documents:
Chit funds are required to provide comprehensive disclosure documents to participants.
These documents should cover all relevant details about the chit, including its structure,
terms and conditions, fees, and the rights and obligations of participants.

Record Keeping:
Proper record-keeping is essential for chit funds. This includes maintaining records of
meetings, decisions, financial transactions, and participant details. Well-organized records
facilitate transparency and can be crucial for regulatory audits.

Regulatory Reporting:
Chit funds are usually required to submit regular reports to regulatory authorities. These
reports may include financial statements, compliance reports, and any other information
required by the regulatory body.

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 ADVANTAGES OF CHIT FUND

Chit funds, when operated within a legal and regulated framework, can offer several advantages
for both organizers and participants. Here are some potential advantages of chit funds:

Savings and Investment Opportunity:

Chit funds provide a systematic and disciplined way for individuals to save money and invest.
Participants contribute a fixed amount regularly, encouraging financial discipline and regular
savings.

Access to Funds:
Participants in a chit fund have the opportunity to access a lump sum amount through a bidding
process. This can be useful for meeting financial needs such as education expenses, business
investments, or emergencies.

No Collateral Requirements:
Chit funds often do not require participants to provide collateral for accessing funds. This can
make it more accessible to individuals who may not have significant assets to pledge as security.

Community Building:
Chit funds are often organized within specific communities or groups of individuals who know
and trust each other. This fosters a sense of community and mutual support among participants.

Financial Inclusion:
Chit funds can be a means of financial inclusion for individuals who may not have access to
traditional banking services. It provides an alternative way for them to save and access funds

Flexibility in Contribution and Payouts:

Chit funds may offer flexibility in the contribution amount and payout structure. This can be
beneficial for participants with varying financial capabilities and needs.
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No Interest Charges:
Unlike traditional loans or credit facilities, chit funds do not charge interest on the amount
accessed by participants. This can be advantageous for those who want to avoid paying
interest on loans.

Discourages Impulse Spending:

The fixed contribution schedule in chit funds encourages disciplined saving and discourages
impulsive spending habits. Participants commit to a regular contribution, promoting financial
responsibility.

Risk Distribution:
Chit funds distribute the risk among participants. In the event of an emergency or unexpected
expense for a participant, the chit fund structure allows them to access funds even if they have
not completed the full tenure.

Profitable for Organizers:

Chit fund organizers earn income through commissions or fees charged for managing the
fund. This can be a profitable business for organizers, provided they operate ethically and
within the legal framework.

It's important to note that while chit funds offer various advantages, there are also risks
involved, such as the potential for fraud or mismanagement. Therefore, individuals
considering participation in a chit fund should carefully evaluate the reputation of the
organizer, understand the terms and conditions, and ensure that the chit fund operates within
the regulatory framework to protect their interests.

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 RISK AND CHALLENGES IN CHIT FUND

While chit funds offer certain advantages, they also come with inherent risks and challenges. It's
important for participants to be aware of these potential drawbacks before deciding to join a chit fund.
Here are some common risks and challenges associated with chit funds:

Fraud and Mismanagement:

One of the primary risks is the potential for fraud or mismanagement by chit fund organizers.
Unscrupulous organizers may misuse funds, engage in Ponzi schemes, or operate without the
necessary regulatory approvals.

Lack of Regulation:
In some regions, chit funds may operate in a less regulated environment, making it easier for
fraudulent activities to occur. Lack of proper oversight can lead to increased risks for participants.

Default by Participants:
Participants may default on their contributions, impacting the overall fund and potentially leading to
lower payouts for other members. This can be particularly problematic in smaller, less tightly knit
communities.

Dependency on Organizer Integrity:

Participants rely heavily on the integrity and ethical conduct of the chit fund organizer. If the
organizer is dishonest or mismanages the fund, participants may face financial losses.

Liquidity Issues:
Chit funds operate on the principle of a rotating payout system, and participants may have to
wait until their turn to receive the lump sum. This lack of immediate liquidity can be a
challenge, especially in emergencies.
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 CAMPARISION WITH OTHER FINANCIAL INSTRUMENT
Chit funds operate differently from other financial institutions, and each financial instrument
has its unique features, advantages, and risks. Here's a comparison between chit funds and
other financial institutions:

Chit Funds vs. Banks:

Chit Funds:
Operate on a rotating savings and borrowing model within a group of individuals.
Participants contribute regularly, and one member receives the lump sum amount through a
bidding process each cycle.
Often community-based and may lack formal banking infrastructure.
Banks:
Offer a wide range of financial services, including savings accounts, loans, and investment
products.
Operate with a larger customer base and have established banking regulations and
infrastructure.
Typically provide more diverse financial products and services.

Chit Funds vs. Mutual Funds :

Chit Funds:
Involve a group of individuals contributing and bidding for a lump sum amount in a
systematic manner.
Generally do not provide investment returns; instead, they facilitate savings and access to
funds.
Have a fixed tenure and a predetermined payout structure.
Mutual Funds:
Pool funds from multiple investors to invest in a diversified portfolio of securities.
Aim to generate investment returns for investors based on the performance of the underlying
assets.
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Chit Funds vs. Credit Unions:

Chit Funds:
Operate on a rotational basis with members contributing and receiving lump sums
periodically.
Often informal and community-based.
May not have a regulatory framework comparable to credit unions.
Credit Unions:
Are cooperative financial institutions owned and operated by their members.
Provide a range of financial services, including savings accounts, loans, and other products.
Operate under regulatory oversight and adhere to established credit union principles.
Chit Funds vs. Cooperative Societies:

Chit Funds:
Typically involve a smaller group of individuals contributing and bidding for lump sums.
May focus on short-term financial needs within the group.
May not offer as many financial services as cooperative societies.
Cooperative Societies:
Are member-owned organizations that provide various financial and non-financial services.
Operate under a cooperative framework, with members having a say in decision-making.
May offer a broader range of services, including banking, agriculture, and housing.

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 TECHNOLOGY IN CHIT FUNDS

Technology plays a crucial role in modernizing and streamlining the operations of chit funds.
The integration of technology brings several benefits, improving efficiency, transparency, and
accessibility. Here are ways in which technology is applied in chit funds:

Online Platforms and Mobile Apps:

Chit funds can leverage online platforms and mobile applications to facilitate participant
registrations, contributions, and bid processes. This enhances accessibility and convenience for
participants, allowing them to manage their chit fund activities from anywhere.

Digital Payments:
Technology enables the use of digital payment methods such as online transfers, mobile wallets,
and UPI (Unified Payments Interface) for chit fund transactions. This reduces the reliance on
cash transactions and enhances security.

Blockchain Technology:
Blockchain can be employed to enhance the security and transparency of chit fund transactions.
It provides an immutable and decentralized ledger, reducing the risk of fraud and ensuring that
the transaction history is tamper-proof.

Automated Auction Processes:

Technology can automate the auction processes in chit funds. Digital platforms can handle the
bidding process efficiently, ensuring a fair and transparent allocation of funds to the winning
bidder.
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Data Analytics:

Data analytics tools can be utilized to analyze participant behavior, trends, and financial
performance. This information can be valuable for chit fund organizers in making informed
decisions, optimizing operations, and identifying potential risks.

Customer Relationship Management (CRM):

CRM systems can help chit fund organizers manage participant relationships more
effectively. These systems can store participant information, track communications, and
provide insights into participant preferences and behaviors.

Regulatory Compliance Solutions:

Technology can assist chit fund organizers in ensuring compliance with regulatory
requirements. Automated compliance solutions can help track and adhere to regulatory
changes, reducing the risk of legal issues.

Communication Platforms:
Technology enables efficient communication between chit fund organizers and participants.
Email, SMS, and other communication channels can be used to send updates,
announcements, and reminders, improving overall engagement.
Security Measures:

Implementation of robust cybersecurity measures is essential to protect the sensitive financial

information of participants. This includes encryption, secure servers, and authentication
protocols.

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 FUTURE TRENDS OF CHIT FUND

Predicting future trends involves some level of speculation, but based on the evolving
financial landscape and technological advancements, several potential trends can be
considered for the future of chit funds:

Increased Digitalization:
Chit funds are likely to become more digital, with increased use of online platforms and
mobile apps for participant interactions, payments, and documentation. This trend would
enhance accessibility and convenience for participants.

Blockchain Integration:
Blockchain technology may find greater application in chit funds, providing a secure and
transparent ledger for transactions. Smart contracts on blockchain platforms can automate
certain processes, such as auctions and payouts, reducing the risk of fraud.

Enhanced Security Measures:

As cyber threats continue to evolve, chit funds will likely invest in more robust cybersecurity
measures to protect participant data and financial transactions. This includes encryption,
multi- factor authentication, and secure cloud storage solutions.

Data Analytics for Risk Management:

The use of data analytics tools is expected to grow for risk management and decision-
making. Analyzing participant behavior, financial trends, and market conditions can help chit
fund organizers identify potential risks and opportunities.
.
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Artificial Intelligence (AI) for Predictive Analysis:
AI applications, particularly machine learning algorithms, can be employed for
predictive analysis in chit funds. This includes predicting participant behavior,
optimizing fund management, and identifying potential default risks.

Customization of Chit Fund Products:

Chit fund organizers may offer more customized products to cater to different customer
segments. This could involve varying contribution amounts, payout structures, and
other features to meet the diverse needs of participants.

Expansion of Financial Inclusion:

Chit funds may play a role in expanding financial inclusion, reaching individuals who are
underserved by traditional banking systems. Digital platforms and mobile banking can
facilitate the participation of a broader range of individuals.

Collaboration with FinTech Companies:

Collaboration between chit funds and FinTech companies may increase. FinTech
innovations can bring new tools and technologies to chit fund operations, improving
efficiency and enhancing the overall participant experience.

Environmental, Social, and Governance (ESG) Considerations:

Chit funds may start incorporating ESG considerations into their operations.
Participants and regulators may place more emphasis on ethical and sustainable
practices, and chit fund organizers may respond by aligning their strategies with ESG
principles.

27
 RISK MITIGATION AND DUE DILLIGENCE ON CHIT FUND

Risk mitigation and due diligence are critical aspects of managing and operating chit
funds to ensure the security and trust of participants. Here are some key measures for risk
mitigation and due diligence in the context of chit funds:

Risk Mitigation:
Regulatory Compliance:
Ensure strict adherence to regulatory requirements and compliance with relevant laws
governing chit funds. Regularly update procedures to align with any changes in the
regulatory environment.

Transparent Operations:
Maintain transparency in all chit fund operations, including clear communication of
terms and conditions, auction procedures, and distribution of funds. Transparent practices
build trust among participants.

Risk Assessment and Management:

Conduct a comprehensive risk assessment to identify potential risks associated with chit
fund operations. Develop and implement risk management strategies to mitigate these
risks effectively.

Participant Education:
Educate participants about the risks and benefits of chit fund participation. Provide clear
information about the terms of the chit, the auction process, and potential financial risks.

28
Diversification of Portfolios:
Encourage diversification of investments within chit fund portfolios. This can help
distribute risk across different sectors or industries and reduce the impact of economic
fluctuations.

Due Diligence on Participants:

Perform due diligence on participants during the registration process. Verify their
identity, financial stability, and creditworthiness to reduce the risk of default.

Security Measures:
Implement robust security measures for data protection, especially concerning personal
and financial information of participants. Cybersecurity measures are crucial to prevent
fraud and unauthorized access.

Legal Documentation:
Develop comprehensive legal documentation, including participant agreements and
contracts. Clearly outline the terms and conditions, rights, and obligations of both the chit
fund company and participants.

Operational Controls:
Establish internal controls and monitoring mechanisms to track and prevent irregularities
in chit fund operations. This includes regular audits and reviews of financial transactions.

29
 Due Diligence

Background Checks on Operators:

Conduct thorough background checks on chit fund operators, including their financial
history, legal standing, and track record. Ensure they are qualified and have a good
reputation in the industry.

Financial Health Assessment:

Assess the financial health of the chit fund company. Review financial statements,
profitability, liquidity, and solvency to gauge the overall stability and sustainability of the
organization.

Compliance with Regulatory Standards:

Verify that the chit fund company complies with all relevant regulatory standards and
licensing requirements. Check for any past or ongoing legal issues or sanctions.
Audit and Inspection:
Conduct regular external audits of chit fund operations to ensure compliance with
financial regulations and ethical business practices.

Operational Due Diligence:

Examine the operational processes of the chit fund, including auction mechanisms, fund
management, and distribution processes. Identify any areas that may pose operational
risks.

Participant Due Diligence:

Continuously monitor the financial health of chit fund participants. Regularly update
participant information and conduct periodic checks to identify any signs of financial
distress.
30
Legal Consultation:
Consider seeking advice from a legal professional or financial advisor who specializes in chit
funds. They can provide guidance on the legal aspects and potential risks associated with the
investment.

Operational Transparency:
Assess the level of transparency in the chit fund's operations. A well-managed fund should
provide clear information about its activities, investments, and financial performance.

Exit Options:
Understand the exit options available to members. Evaluate the ease of withdrawing from the
chit fund and any associated costs or restrictions.
Remember that investing in chit funds, like any financial decision, involves risk. It's essential
to make informed decisions based on thorough due diligence and seek professional advice
when necessary. Member Feedback:

Seek feedback from existing or past members of the chit fund. This can provide valuable
insights into the fund's operations, transparency, and reliability.
Risk Assessment:

Understand the risks associated with the chit fund, including market risks, credit risks, and
operational risks. Evaluate how the fund manages and mitigates these risks.

31
 CHAPTER 2

REVIEW OF LITERATURE

32
 REVIEW OF LITERATURE

Rajan & Zingales (1998), in “Financial dependence and growth”, examined

whether financial development facilitates economic growth. They scrutinized
the relationship between financial development and cost of external finance of
firms. They, using a large sample of countries during the 1980’s, found that
industrial sectors, those need external finance more, showed disproportionate
faster growth in countries with more elaborated financial markets. The data on
value addition and gross fixed capital formation for each industry was gathered
from the Industrial Statistics Yearbook of United Nations Statistical Division.
Equity market capitalization data were acquired from International Finance
Corporation. Although the study considered 55 countries initially, 41 countries’
data were sustained. By reducing the cost of external finance to financially
dependent firms, financial development can substantially contribute to the
economic growth

Shittu & Ibrahim (2012) examined the impact of financial intermediation on

economic growth in Nigeria. They used time series data from 1970 to 2010
which were gathered from the Central Bank of Nigeria (CBN) publications.
Unit root test, co integration and Engle-Granger techniques were used for
analysis. They found that financial intermediation has a significant impact on
the economic growth in Nigeria. The annual data collected from the CBN
Statistical Bulletin, Annual reports and Mid-Year Economic Review
Individual financial firms cannot determine their optimal capitalisation in
isolation (Bernardo & Welch, 2013). Financial firms have to take the aggregate
financial sector characterestics into account. In particular, they become more
aggressive when their peers are more conservative.

33
Kupiec & Ramirez (2013) measured the effect of bank failures on economic
growth. They used data from 1900 to 1930. The period was characterised
without active government stabalisation policies and several severe banking
crises. Their vector autoregression (VAR) model estimates suggest that bank
failures have long-lasting negative effects on economic growth. Their Panel
VAR model estimates for the 48 states show bank failures aggravate
commercial non-bank failures. Institutional and regulatory features affect the
intensity of the bank failure effect. They found that bank failures have a larger
impact in states with deposit insurance, in states concentrated more on
agriculture, and in states with fewer large firms. The authors modelled
relationships between bank failures and the growth rate of industrial production
and aggregate output (GNP). Their data include nearly 6000 quarterly
observations for the 48 states from 1900 Q1 through 1931 Q2. The data include 25
failed national banks as well as failed state-chartered banks and trust companies.

Anginer, Kunt, & Zhu (2014) showed a robust negative relationship between
bank competition and systemic risk. They found that greater competition
encourages banks to take on more diversified risks. It make the banking system
less fragile to shocks. In addition, banking systems are more fragile in countries
with weak supervision and private monitoring, greater government ownership
of banks, and with public policies that restrict competition. They also found
that the negative effect of lack of competition can be mitigated by a strong
institutional environment that allows for efficient public and private monitoring
of financial institutions. Their sample consisted 1872 unique publicly traded
banks in 63 countries from 1997 to 2009. Probability of distressed bank failure is increased
with asset-based nontraditional activities (DeYoung & Torna, 2013). Authors’ interest was to
test

34
They estimated using a multi-period logit model. Banks that engaged in risky nontraditional
activities tended to take risk in their traditional lines of business.The authors identified the
defining characterestics of banks that failed between the third quarter of 2008 and the fourth
quarter of 2010, based on their activities two quarter prior to their failure. Carrasco &
Salgado (2014) studied the bank run which is originating in the bank’s asset side, rather than
from its funding structure. Coordinated strategic defaults3 are a source of financial fragility.
Interconnectedness is a key driver of systemic importance (Drehmann & Tarashev, 2013).
The authors tried to measure the extent to which a bank (i) propogates shocks across the
system and (ii) is vulnerable to propagated shocks. Their measure of system-wide risk is the
expected loss that the banking system as a whole imposes on non-banks in systemic events

Beck, Jonghe, & Schepens (2013) documented large cross-country variation in the
relationship between bank competition and bank stability. They showed that an increase in
competition will have a larger impact on banks’ fragility in countries with stricter activity
restrictions, lower systemic fragility, better developed stock exchanges, more generous
deposit insurance and more effective systems of credit information sharing. They analyzed
the sample of 17055 banks for the period of 1994-2009. 53.4 percent of the sample constitute
commercial banks, 28.2 percent of the sample constitute savings bank and 18.4 percent of the
sample constitute cooperative banks. Gauthier, Lehar, & Souissi (2012) found that financial
stability can be substantially enhanced by implementing a systemic perspective on bank
regulation. Authors used a network based structural model to measure systemicrisk. They
used a data set of six largest Canadian banks as a representation of he whole Canadian
banking system.

35

.
Jeromi (2007) analyzed the working of money lenders in Kerala. Estimating the volume of
deposits and credit of money lenders, the study brought out the undesirable aspects and its
impact on society. Primary data gathered from 97 money lenders in Ernakulam District and
balance sheet data collected from 49 financiers. It was found that some of the informal
financial institutions have links with formal financial institutions. To evade the law, some of
the financiers raise funds in the name of sister concerns- who are engaged in real estate,
housing, medical care, retail business etc.

Jonghe & Öztekin (2015) examined the dynamic behaviour of bank capital using a global
sample of 64 countries during the 1994-2010 period. They illustrated that the capital structure
of a bank reflects the environment it operates. Leveraging is accomplished through internal
capital management, mainly through substantial asset expansion and reduced earnings
retention. There is significant variation in the speed of adjustment to target capital structure.
This variation, according to authors, is due to the differences in the regulatory, supervisory,
and economic systems in which banks operate

Goel, Song, & Thakor (2014) found a positive correlation between high everage among
borrowers and high leverage among banks. A banks’s exposure to credit risk depends not
only on its own leverage but also on the leverage decisions of other banks Stefan Klonner,
(2008). This article studies how altruism improves allocations in a private information
environment where strategic behaviour reduces economic welfare. A theoretical analysis
establishes that, in an environment characterised by uncertainty and private information,
outcomes of auctions in Rotating Savings and Credit

36
 CHAPTER 3

RESEARCH METHODOLOGY

37
RESEARCH METHODOLOGY

Research methodology refers to the systematic and structured process of planning, executing,
and analyzing research activities. It encompasses the techniques, procedures, and guidelines
employed by researchers to collect, analyze, and interpret data in order to answer research
questions or test hypotheses. A well-defined research methodology is crucial for ensuring the
reliability, validity, and credibility of research findings.
The objectives of a study on chit funds can vary based on the specific focus and scope of the
research. However, here are some common objectives that researchers may pursue when
studying chit funds:
OBJECTIVE OF THE STUDY
Understanding the Structure and Functioning:
To analyze the organizational structure and operational mechanisms of chit funds.
To examine how chit funds mobilize and allocate funds among participants.

Assessing Regulatory Compliance:

To evaluate the extent to which chit funds comply with existing legal and regulatory
frameworks.To identify areas of improvement in regulatory oversight and enforcement.

Exploring Participant Perspectives:

To understand the motivations and expectations of individuals participating in chit funds.
To investigate participant satisfaction, concerns, and perceptions regarding the benefits and
risks associated with chit fund investments.

Analyzing Financial Performance:

To assess the financial viability and performance of chit funds over time.
To compare returns from chit fund participation with alternative investment options.
38
Identifying Risk Factors:
To identify and analyze the various risks associated with chit fund operations.
To propose risk mitigation strategies for both chit fund operators and participants.
Examining Chit Fund Defaults and Fraud:
To investigate cases of defaults or fraud in chit funds and identify contributing factors.
To propose measures for preventing and addressing fraud within the chit fund industry.

Comparative Analysis:
To compare the functioning and impact of chit funds across different geographic regions or
regulatory environments.
To identify best practices or challenges that may vary across contexts.

Policy Recommendations:
To provide evidence-based recommendations for policymakers to improve the regulatory
framework governing chit funds.
To suggest measures for enhancing the transparency and stability of the chit fund industry

Contributing to Academic Knowledge:

To contribute new insights and knowledge to the academic literature on chit funds.
To fill gaps in existing research and stimulate further scholarly inquiry.
It's important for researchers to clearly articulate their specific objectives, as this will guide
the research design, methodology, and analysis. Additionally, well-defined objectives help
ensure that the study provides meaningful and relevant insights into the dynamics of chit
funds and their impact on various stakeholders..

39
 SCOPE OF STUDY

The scope of a study on chit funds is broad and can encompass various aspects related to
their structure, functioning, impact, and regulatory environment. Depending on the specific
focus and objectives of the study, the scope may include the following areas:

Structural Analysis:
Investigating the organizational structure of chit funds.
Examining the roles and responsibilities of key stakeholders, including promoters, foremen,
and participants.

Operational Mechanisms:
Studying the operational processes of chit funds, including the conduct of auctions, fund
disbursement, and collection procedures.
Analyzing how chit funds manage and invest pooled funds.

Regulatory Framework:
Assessing the regulatory environment governing chit funds at local, regional, or national
levels.
Exploring the effectiveness of existing regulations in ensuring transparency, fairness, and
protection for participants.

Financial Performance:
Analyzing the financial sustainability and profitability of chit funds.
Comparing the returns offered by chit funds with other investment options.

40
Participant Perspectives:
Understanding the motivations and decision-making processes of individuals participating in
chit funds.
Exploring participant satisfaction, concerns, and perceptions about the risks and benefits of
chit fund investments.

Socio-Economic Impact:
Investigating the impact of chit funds on the socio-economic conditions of participants.
Assessing whether chit funds contribute to financial inclusion or economic empowerment,
particularly in underserved communities.

Risk Assessment:
Identifying and evaluating the various risks associated with chit fund operations.
Developing a risk management framework for chit fund operators and participants.

Default and Fraud Analysis:

Examining cases of defaults or fraud within the chit fund industry.
Identifying patterns, causes, and preventive measures to mitigate defaults and fraud.

Comparative Studies:
Conducting comparative analyses of chit funds across different geographic regions, cultural
contexts, or regulatory environments.
Highlighting variations in practices, challenges, and successes.

41
Technological Impact:
Exploring the role of technology in modernizing chit fund operations.
Assessing the impact of digital platforms and financial technologies on the efficiency and
accessibility of chit funds.

Academic Contributions:
Contributing new knowledge and insights to the academic literature on chit funds.
Identifying areas for future research and expansion of the academic discourse.
The scope of the study should be clearly defined based on the research objectives and
questions. By delineating the boundaries of the study, researchers can ensure a focused
and effective investigation into the selected aspects of chit funds.

Policy Recommendations:
Providing evidence-based recommendations for policymakers to enhance the regulatory
framework for chit funds.
Suggesting measures to address gaps in regulation and improve the overall stability of the
chit fund industry.

42
 DATA COLLECTION

Data was collected from primary and secondary source of data which are given bellow as
follows

When conducting a study on chit funds, researchers can utilize both primary and secondary
data sources to gather comprehensive and meaningful insights. Here's an overview of
primary and secondary data sources for a study on chit funds:

Primary Data Sources:

Surveys and Questionnaires:

Design and distribute surveys or questionnaires to chit fund participants, foremen, or promoters to
gather first-hand information about their experiences, preferences, and perceptions.

Interviews:
Conduct in-depth interviews with key stakeholders such as chit fund operators, regulators, and experts
in the field. This qualitative approach can provide nuanced insights into the functioning and
challenges of chit funds. Focus Group Discussions:
Organize focus group discussions with participants to explore common themes, attitudes, and opinions
related to chit funds. This method can generate rich qualitative data through group interactions.

Direct Observation:
Observe chit fund auctions, meetings, or other relevant activities to gain a direct understanding of the
operational aspects, participant behavior, and dynamics within chit fund groups.

Field Studies:
Conduct field studies to immerse researchers in the actual environment of chit fund operations. This
approach allows for real-time observation and interaction with participants.

43
Secondary Data Sources :
Literature Review:
Review existing academic literature, research articles, and books on chit funds to understand
the historical context, theoretical frameworks, and findings of previous studies.

Government Reports and Publications:

Access reports and publications from regulatory bodies and government agencies that provide
information on the legal and regulatory framework, licensing requirements, and compliance
standards for chit funds.

Financial Databases:
Utilize financial databases to collect quantitative data on the financial performance of chit
funds. This can include historical financial statements, returns, and investment portfolios.

Legal Documents:
Analyze legal documents such as chit fund regulations, guidelines, and legislative acts to
understand the legal framework governing chit funds.

Industry Reports:
Access industry reports and market studies published by financial institutions, consultancy
firms, or industry associations to gain insights into market trends, challenges, and
opportunities .or information on recent developments, controversies, and public perceptions
related to chit funds

Financial Journals and Magazines:

Explore financial journals and magazines for articles and editorials that discuss chit funds,
financial inclusion, and related topics.

44
 SAMPLE PROCEDURE OF CHIT FUND

The sample procedure for a chit fund typically involves the various steps and processes that
chit fund operators follow when conducting chit fund auctions and managing the overall
operation. Keep in mind that the exact procedures may vary based on the specific chit fund
company, its organizational structure, and the regulatory framework in place. Below is a
generalized sample procedure for a chit fund:
1. Registration:
Prospective participants register with the chit fund company by providing necessary
documents and completing the registration form.
Participants may be required to undergo a Know Your Customer (KYC) process to comply
with regulatory requirements.

2. Formation of Chit Groups:

Participants are grouped together to form a chit group or chit circle.
The number of participants in a group, the chit amount, and the duration of the chit are
predetermined and communicated to the members.

3. Chit Auction Announcement:

Chit fund operators announce the date, time, and location of the upcoming chit auction to all
members.
Participants are informed about the total chit amount, the number of installments, and the
contribution amount for each installment.

4. Conducting Chit Auctions:

Chit auctions are conducted on the specified date and time.
Participants bid for the chit amount, and the participant willing to accept the lowest share
(discounting the auction commission) wins the bid.

45
5. Collection of Installments:
After the auction, the winning participant receives the chit amount minus the auction
commission.
All participants contribute their installment amounts as per the predetermined schedule.
Chit fund operators collect installments either through a centralized collection point or
other designated methods.

6. Distribution of Funds:
The collected funds are distributed among the participants according to the predetermined
schedule.
The member who won the bid in the auction receives their share first, and the process
continues until all members receive their share.

7. Record Keeping:
Chit fund operators maintain detailed records of each chit group, including participant
details, auction outcomes, installment payments, and fund distributions.

8.Compliance with Regulations:

Chit fund operators ensure compliance with legal and regulatory requirements, including
submitting necessary reports to regulatory authorities.

9. Closure of Chit Group:

The chit fund group is closed once all installments are collected, and the chit amount is
distributed among the participants.
Participants may choose to rejoin or form new chit groups for subsequent cycles.

46
 LIMITATIONS OF STUDY

When conducting a study on chit funds, researchers may encounter several limitations that
can affect the interpretation and generalizability of their findings. Here are some common
limitations associated with studies on chit funds:

Limited Generalizability:

Chit fund operations can vary significantly based on regional, cultural, and regulatory
differences. Findings from a study conducted in one geographic area may not be easily
generalizable to other regions or countries.
Data Availability and Accuracy:

Obtaining accurate and comprehensive data on chit funds may be challenging. Limited
access to financial records, participant information, and operational details can hinder the
depth of the study.
Participant Bias:

Participants may provide biased or incomplete information, especially if they have concerns
about privacy or if they perceive the research as a regulatory inquiry. This could impact the
accuracy of data collected through surveys or interviews.
Regulatory Changes:

The chit fund industry is subject to regulatory changes. Studies conducted under a specific
regulatory framework may become outdated if significant changes occur during or after the
research.

47
Operational Challenges:

Chit funds, like any financial institution, face operational challenges. These challenges, such
as fraud, default, or mismanagement, can affect the outcomes of the study and the general
perception of the industry.
Limited Longitudinal Data:

Long-term data on the performance and sustainability of chit funds may be limited. The lack
of historical data can make it challenging to assess trends and changes in the industry over
time.
Social Desirability Bias:

Participants might provide responses that align with socially desirable answers rather than
expressing their true opinions or experiences. This bias can affect the validity of findings
related to participant satisfaction or concerns.
External Economic Factors:

Economic conditions, such as recessions or economic downturns, can significantly impact the
financial performance and stability of chit funds. These external factors may not be
controllable or predictable during the study period.
Self-Selection Bias:

Participants who choose to join the study may not be representative of the entire chit fund
participant population. Those who opt to participate may have unique characteristics that
differ from non-participants.

48
 CHAPTER 4

DATA ANALYSIS
AND INTERPRETATION

49
 1.QUESTIONNAIRE

INTERPRETATION
as per the survey conducted most of the male 56% has invested in chit fund
campare to female 44%

50
 2.Age group

18 – 25 =41%
26 -25 =22%
36 – 45 =25%
46 – 55 =12%

INTERPRETATION:
As per the survey conducted most of the people start their investment in the
age of 18-25 41%And second most group of age is 36-45 25% and 26-25 is
22% the lowest investor are 46-55 age is 12%

51
 3.occupation
Salaried =34%
Self employed = 28%
Business owner = 22%
Student = 16%

Interpretation:
Most of the investors are salaried 34% and number of self employed
investor are 28% .number of business owner investor is 22% hence the
lowest number of percent are student 16%

52
 4.Are you aware of chit funds

Yes = 91%
No = 9%

INTERPRETATION:

As per the data 91% of the people are aware of chit fund and 9% of the
people are not aware

53
 5.How familiar are you with chit funds as an investment option?

Very familiar =37%

Somehow familiar = 50%
Not familiar =13%

INTERPRETATION:

As per the survey 50% of the people are somehow familiar. 12% people are
not familiar at all and 38% people are very familiar

54
6.How would you describe your perception of chit funds as an investment

Very positive = 19%

Positive = 47%
Neutral = 34%
Very negative = 0%

INTERPRETATION:

AS 47% of the people describe positive perception for investment in chit

fund .34% of the people’s perception is neutral and 19% of the people's
perception is very positive hence no one has perception as very negative in
investment in chit fund

55
 7.What factors influenced your trust in chit funds
Transparency = 28%
Past performance = 44%
Recommendation from other= 25%
Regulatory approval = 3%

interpretation:

28% transparency influenced trust in chit fund . 44% of the past performance
influenced trust in chit fund and 25% recommendation from other has
influenced trust in chit fund hence only 3% 0f the people has been influenced
from regulatory approval

56
 8.How would you rate the perceived risk associated with chit funds
compared to other investment options

Higher risk =16%

Moderate risk =66%
Lowest risk =9%
Not sure =9%

Interpretation :

66% of the people think investing in chit fund has moderate risk whereas 16%
of the people think investing in chit fund higher risk and 9% of people think
lowest risk hence 9% of the people are not sure

57
9.What factors would influence your decision to invest in a chit fund
Potential returns = 22%
Duration of the chit = 31%
Trustworthiness of the organizer = 28%
Flexibility of withdraws = 19%

Interpretation:

31% of the people has been influenced in decision to invest in a chit fund
due to duration of the chit fund .28% of the people has been influenced in
decision to invest in chit fund due to trustworthiness of the organizer and
22% of the has been decided to invest in chit fund due to potential returns
whereas 19% of the people think to invest because of flexible of
withdraws.

58
 10.Have you ever invested in a chit fund before

Yes = 28%
No = 72%

INTERPRETATION:

28% have invested in chit fund before and nearly 72% have not invested
this shows majority of people have not invested in chit fund

59
11.Are you aware of the regulatory framework governing chit funds
in your region
Yes = 81%
No = 19%

Interpretation:

ITERPRETATION:

81% of the people are aware of the regulatory framework governing chit fund and
19% of the people are not aware of regulatory framework governing chit fund
this shows majority of the people are aware of regulatory framework

. 60
 12.How does regulatory awareness impact your confidence in
investing in chit funds?
Positively = 53%
negative = 6%
No impact = 41%

Interpretation:

53% of the people has regulatory awareness impact on confidence in chit

fund whereas 41% of the people has regulatory awareness impact on
confidence in chit fund and only 6% of the people has negative impact.

61
 13.Would you consider investing in a chit fund in the future

Yes = 63%
No = 9%
Maybe = 28%

INTERPRETATION:
63% of the people consider investing in a chit in the future
whereas 28% of the people consider investing in a chit fund and
only 9% of the people don’t consider investing in future .

62
Any suggestions or improvements you would like to see in chit fund
operations or regulations?

1)No suggestions
2)As per existing Chit Regulations, the companies are required to make a full
disclosure before floating new chits. More regulation, more difficult to run the
business .The higher the return, the higher the risk . Investors should make
judicious investment
3)Good for investment but there should be higher level of money pool
4)nothing
5)Nothing
6)Chit fund should advertise more
7)No
8)No improvement required

63
 CHAPTER 5

FINDINGS AND CONCLUSION

64
 CONCLUSION

Chit funds are similar concepts like credit unions or Roscas which aimed at benefiting the
poor people. There suits from this study underscore the importance of Chit Funds as a
savings and borrowing vehicle for the poor and lower income households and the
respondents felt that Chit Funds play a major role for borrowers and savers. In
particular, Chit Funds tend to provide alternative access to financial services to the people
that are underserved by the formal bank industry. Chit funds were well received and
understood by the people of India.

From the study it can be concluded that people have good knowledge and belief about Chit
funds. Chit funds have reached the people because of the simple procedure and systems.
People from all categories like business and others prefer chit funds. Most of the family
members also prefer chit funds. The statistical tools conclude that income of the individuals
have a say in investment time horizon and age is one of the important
factors in deciding about the savings of the individuals.

The recent changes in chit fund regulation have significantly increased the transaction costs
for chits, and since most of the costs have to be incurred for each additional member the
regulations have pushed funds away from serving the poor. Instead funds can only justify
the transaction costs per capita if the individual ticket size is large. There is no doubt that
chit fund can serve as better vehicle of saving and investment with the strong regulatory
measures and removal of unwanted costs.

65
The recent changes in chit fund regulation have significantly increased the transaction
costs for chits, and since most of the costs have to be incurred for each additional member
the regulations have pushed funds away from serving the poor. Instead funds can only
justify the transaction costs per capita if the individual ticket size is large. There is no
doubt that chit fund can serve as better vehicle of saving and investment with the strong
regulatory measures and removal of unwanted costs.

Chit funds are financial arrangements where a group of individuals pool their money
together to be distributed among the members periodically. While chit funds can be a
legitimate and useful financial tool for some communities, they also carry inherent risks
and have been associated with fraudulent activities. Here are some key points to
consider when drawing conclusions about chit funds:

Legal and Regulatory Environment:

Chit funds operate within a legal framework in many countries, and their legality
depends on the regulatory environment.
Some jurisdictions have stringent regulations to protect investors, while others may lack
proper oversight, leading to potential risks.
Benefits:

Chit funds can provide access to financial services for individuals who may have
limited access to traditional banking systems.
Members can use the pooled funds for various purposes, such as emergency expenses,
education, or business investments.

66
Risks:

There is a risk of fraud and mismanagement in unregulated or loosely regulated chit

funds.
Participants may face financial losses if the organizer or other members default on
their payments.
Lack of transparency and accountability can lead to disputes and legal issues.
Social and Community Aspect:

Chit funds often operate within close-knit communities, fostering a sense of trust and
cooperation among members.
In some cases, they serve as a social and economic support system within
communities.
Alternative Financial Instrument:

Depending on the financial goals and risk tolerance of individuals, there may be
alternative investment options that offer similar or better returns with lower associated
risks.
Due Diligence:

Individuals considering participation in a chit fund should conduct thorough due

diligence on the organizer, the legal status of the fund, and the regulatory
environment.
Understanding the terms and conditions of the chit agreement is crucial to making
informed decisions.

In conclusion, while chit funds can be a viable financial tool for certain communities,
caution is warranted due to potential risks, especially in less-regulated environments.
It is essential for participants to exercise due diligence, understand the legal and
regulatory landscape, and carefully evaluate the risks and benefits before engaging in
chit fund arrangements. Seeking advice from financial professionals can also
contribute to making informed decisions in the realm of chit funds.

67
 FINDINGS
We find that the chit fund industry addresses the savings needs of people, is considered very
safe and also offers loans at lower interest rates than moneylenders.

In a chit fund project, we find several components:

Regulatory Compliance Information regarding the legal framework governing chit funds,
including regulations set forth by the government or financial authorities. and Operational
Structure Details about how the chit fund operates, including roles and responsibilities of
the promoter, foreman, and subscribers, as well as the processes involved in conducting
auctions, collecting contributions, and disbursing funds.

Financial Models: Analysis of the financial aspects of the chit fund, such as the calculation
of chit amounts, interest rates, penalties for defaulters, and the overall financial viability of
the scheme.

Risk Management: Strategies for managing risks associated with chit funds, such as
default by subscribers, fraud, and regulatory compliance risks.

Technology Solutions: Increasingly, chit funds are being digitized for efficiency and
transparency. A chit fund project might include information on software platforms or mobile
applications developed to manage chit fund operations and transactions.

Consumer Protection: Measures to protect the interests of subscribers, including

disclosures, transparency requirements, and dispute resolution mechanisms. Market
Analysis: Examination of the demand for chit funds, competition from other financial
products, and factors influencing the growth or decline of the chit fund industry.

Social Implications : Consideration of the socioeconomic impact of chit funds on

individuals and communities, including financial inclusion, wealth creation, and potential
risks of exploitation or abuse.

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1. Reference:

1)Anderson Siwan, Baland jean-Marie, “The Economics of Intra-Household

Allocation”,
Quarterly Journal of Economics, Volume 117, Issue 3, 2002

2) Besley, Timothy, et al, “The Economics of Rotating Savings and Credit

Associations”,
American Economic Review. Volume 83, Issue 4, September 1993.

3) Chiteji. N. S., “Promises kept: enforcement and the role of rotating savings
and Credit associations in an economy” Journal of International
Development, 14, 2002

4) Elsa Bawani Satkunasingam et al, “Underground banking in Malaysia: a

case study of ROSCAs”, Journal of Money Laundering Control, Vol. 9 Issue:
1, 2006.

5) Ferguson, Bruce, “Housing Microfinance- A Key to improving habitat and

the Sustainability of microfinance institutions”. Small Enterprise
Development, International journal of microfinance\and business
development. Volume 14, Number 1, 1 March 2003.

6) Ghate P.B, “Interaction between the formal and informal financial sectors:
The Asian experience”, World Development, Volume 20, Issue 6, June 1992

7) Mudit Kapoor et al, “Chit Funds as an Innovative Access to Finance for

Low-income Households”, ifmr.ac.in, 2006
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 ANNEXURE

QUIESSIONNAIRE

AGE
18-25
26-35
36-45
46-55

GENDER
Male
Female
Other

OCCUPATION
Salaried
Business Owner
Self employed
Student

1)Are you aware of chit funds ?

Yes
No

2) How familiar are you with chit Funds as an investment option?

Not familiar
Somehow familiar
Not familiar at all
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3)What factors influenced your trust in chit funds?

Transparency
Past performance
Recommendations from other
Regulatory approval

4)How would you rate the perceived risk associated with chit funds compared to
other investment options?

Higher risk
Moderate risk
Lower risk
Not sure

5)What factors would influence your decision to invest in a chit fund?

Potential returns
Duration of the chit
Trustworthiness of the organizer
Flexibility of withdrawals

6)Have you ever invested in a chit fund before?

Yes
No

7)Are you aware of the regulatory framework governing chit funds in your
region?

Yes

No 71
8)How does regulatory awareness impact your confidence in investing in chit
funds?

Positively
Negatively
No impact

9)Would you consider investing in a chit fund in the future?*

Yes
No
Maybe

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 BIBILOGRAPHY
https://www.scribd.com/document/458163492/chit-fund

https://en.wikipedia.org/wiki/Chit_fund

https://okcredit.in/blog/what-are-chit-funds-and-how-they-works

https://www.drishtiias.com/pdf/chit-fund.pdf

https://www.researchgate.net/publication/258183109_Chit_Funds_as_an_Inn
ovative_Access_to_Finance_for_Low-income_Households

73