MESIOM

RAJAJINAGAR
ABKM TEAM
CHIT FUNDS AND NIDHI COMPANY
 INTRODUCTION
 Chit Funds are regulated by the CHIT FUNDS ACT,1982,
while Nidhi companies are governed by the COMPANIES ACT
,2013.

These entities provide financial services to their members

and operate within legal framework set by the respective
regulatory authorities.
What is CHIT Fund?
 A Chit fund is a type of savings and investments scheme where a
group of people pool their money together and take turns receiving a
lump sum amount.
CHIT FUNDS
Advantages :
 Group of people : Chit funds involve a group of individuals who
come together to pool their money.

 Regular contribution : Each member contributes a fixed amount

regularly , usually on a monthly basis.

 Pool of funds : The contributions from all the members create a pool
of funds that is available for distribution.
 Bidding process : Every month , one member gets the opportunity
to receive a lump sum amount from the pool through a bidding
process.

 Interest rate : The bidding process determines the interest rate at

which the member receives the funds.

 Rotation : This process continues until all the members have

received their turn to receive the lump sum amount.
Disadvantages of Chit funds :
 Lack of government regulation : Chit funds are not regulated by the
government, which means there is a higher risk of fraud or
mismanagement.

 Uncertain returns : While chit funds promise returns, there is no

guarantee that you will receive the expected returns.

 Delayed payments : Sometimes, you may experience delays in

receiving your money from a chit fund. This can be frustrating if you
need the funds urgently.
EXAMPLE
What is NIDHI Company?
As per Section 406, “Nidhi” means a company which has been
incorporated as a Nidhi with the object of cultivating the habit of
thrift and savings amongst its members,receiving deposits from,and
leading to,its members only, for their mutual benefit.
NIDHI COMPANY
Advantages :
 Easy formation : Nidhi companies are relatively easy to form
compared to other types of companies.

 Limited liability : Members of nidhi company have limited liability,

which means their personal assests are protected in case of any
financial liabilities of the company.

 Savings and lending activities : Nidhi companies focus on accepting

deposits and providing loans to their members, which can help in
promoting savings and meeting the financial needs of the members.
 Mutual benefit : Nidhi companies are formed for the mutual benefits
of their members, fostering a sense of cooperation and community
among the members.

 Localized operations : Nidhi companies are usually formed at a local

level, which allows them to cater to the specific financial
requirements of a particular region.
Disadvantages of Nidhi Company :
 Limited operations : Nidhi companies are restricted from engaging in
certain business activities, which can limit their growth potential and
diversification.

 Limited membership : Nidhi companies have restrictions on the

maximum number of members they can have , which can limit their
ability to attract new members and expand their network.
 Regulatory compliance : Nidhi companies still need to comply with
certain regulations and reporting requirements, although they have
fewer compliances requirements compared to other companies.

 Dependency on members : The success of a nidhi company heavily

relies on the active participation and financial contribution of its
members.
Differences between Chit funds and Nidhi Company :

CHIT FUNDS NIDHI COMPANY

i. Savings and credit system for i. Lending and borrowing
a group of individuals. money among the members.

ii. Rotating savings and credit ii. Non-banking financial

association. institution.

iii. Regulated by state iii. Regulated by the Ministry of

governments. Corporate Affairs.
CHIT FUNDS NIDHI COMPANY
iv. Involves a smaller group of iv. Can have a larger number of
individuals. members.

v. Primarily focused on savings v. Engages in a wider range of

and credit activities. financial activities.
 Conclusion
After seeing the advantages and disadvantages of chit funds and nidhi
companies, the decision between chit and nidhi companies depends on
your financial goals, risk tolerance, and personal preferences.
It’s always a good idea to consult with professionals or experts who
can provide personalized advice based on your specific situation.