CHIT FUND

 MEANING
 TYPES OF CHIT FUND
 OTHER NAMES OF CHIT FUND
 HOW DO CHIT FUND WORK
 FEATURES OF CHIT FUNDS
 BENEFITS OF CHIT FUNDS
 THINGS TO CONSIDER BEFORE INVESTING
IN CHIT FUND
 ROLE OF SEBI AND RBI IN CHIT FUNDS NAME: YASH JAIN
 ADVANTAGES AND DISADVANTAGES OF CLASS: FYBMS
CHIT FUND ROLL NO: A-120
SUBJECT: FINANCIAL ACCOUTING 2
 MEANING OF CHIT
FUND
CHIT FUND IS DEFINED AS PER THE SECTION 2(B) OF THE CHIT FUND ACT, 1982. ACCORDING
TO THIS ACT; A CHIT FUND IS A TYPE OF ROTATING SAVINGS AND AGREEMENT AMONG
DIFFERENT PERSONS I.E. FRIENDS, RELATIVES, NEIGHBORS AND FAMILY MEMBERS TO
SUBSCRIBE A CERTAIN SUM OF MONEY FOR A SPECIFIED PERIOD OF TIME. CHIT FUNDS ARE
OFTEN MICROFINANCE ORGANIZATIONS. CHIT FUNDS ARE ALSO KNOWN AS THE CHITTY,
KUREE, CHIT.
IT IS WORTH TO MENTION THAT THERE ARE OVER 10,000 REGISTERED CHIT FUNDS IN INDIA.
UNDER THE CHIT FUND AGREEMENT; A CERTAIN AMOUNT IS DEPOSITED ON REGULAR BASIS
BY THE DIFFERENT PERSONS; AND AFTER THE GAP OF A SPECIFIED PERIOD OF TIME THE
AMOUNT IS RETURNED TO THE SUBSCRIBERS WITH INTEREST. CHIT FUND HELPS IN
COLLECTING THE SMALL SAVINGS OF THE INDIVIDUALS WHICH TURNS INTO A BIG AMOUNT.
•
EXAMPLE OF CHIT FUND
ONE CHIT FUND START WITH 10 MEMBERS WITH A MONTHLY
CONTRIBUTION OF RS.10,000 PER MONTH.10 PEOPLE X RS 10,000 = 1
LAKH THE AMOUNT COLLECTED FROM ALL MEMBER IN A GROUP
CALLED AS POT. ONCE THE AMOUNT IS COLLECTED IT IS PLACED FOR
THE AUCTION AMONG SUBSCRIBERS. THE SUBSCRIBER WHO AGREES
TO TAKE THE LOWEST AMOUNT WILL GET THE PRIZE. SUPPOSE FOR
THE FIRST MONTH ONE SUBSCRIBER (MURALI) BID LOWEST SAY 75%
OF POT AMOUNT. THIS MEANS RS.75,000/- (75% OF POT AMOUNT)
WILL BE GIVEN TO HIM AS A PRIZE. SUPPOSE 10% COMMISSION IS
CHARGED BY FOREMAN, TOTAL OF RS.10,000/- (1,00,000*10%) WILL BE
PAID TO HIM. REMAINING AMOUNT OF RS.15000/- (1,00,000 - 75,000 -
10,000) WILL BE DISTRIBUTED AMONG OTHER SUBSCRIBERS. ALL
REMAINING SUBSCRIBERS GET RS.1,500 EACH AND IT IS CALLED
'REBATE OR DISCOUNT RECEIVED'. SO, EFFECTIVE CONTRIBUTION
FOR THE FIRST MONTH WOULD BE RS.8,500/-(10,000-1,500) FOR EVERY
SUBSCRIBER. 
TYPES OF CHIT FUND
THERE ARE FIVE DIFFERENT TYPES OF CHIT FUNDS THAT YOU CAN INVEST IN AND BE A PART OF.
1.
REGISTERED CHIT FUNDS
REGISTERED CHIT FUNDS ARE THE ONES THAT ARE REGISTERED WITH THE REGISTRAR OF FIRMS SOCIETIES AND CHITS. THE RBI REGULATES THESE
TYPES OF CHIT FUNDS WITH CHIT FUNDS ACT, 1982 THAT IS ENFORCED ACROSS STATES IN INDIA.
2.UNREGISTERED CHIT FUNDS

UNREGISTERED CHIT FUNDS ARE SAVING SCHEMES THAT ARE OPERATED AMONG FRIENDS, FAMILY OR COLLEAGUES. THIS TYPE OF CHIT FUNDS IS
CONSIDERED RISKIER THAN REGISTERED CHIT FUNDS.
3.ONLINE DIGITAL CHIT FUNDS
WITH DIGITALIZATION, CHIT FUNDS HAVE EVOLVED AND ARE ORGANIZED ONLINE. THESE TYPES OF CHIT FUNDS HAVE ONLINE AUCTIONS. THE
SUBSCRIBERS CAN MAKE THEIR MONTHLY CONTRIBUTIONS ONLINE AND ALSO RECEIVE THEIR PRIZE MONEY THROUGH ONLINE MODES. IN THIS TYPE,
EACH SUBSCRIBER HAS TO CREATE AN ONLINE ACCOUNT THROUGH WHICH HE/SHE CAN MANAGE AND CIRCULATE CHIT FUNDS.
4.ORGANIZED CHIT FUNDS
MORE COMMON IN NORTH INDIA, THIS TYPE OF CHIT FUND REQUIRES ALL THE MEMBERS TO COME TOGETHER ON A MONTHLY OR WEEKLY BASIS. THE
NAMES OF ALL THE MEMBERS ARE WRITTEN ON SMALL PAPER SLIPS AND COLLECTED IN A BOX. THE PERSON IN CHARGE OF THE GROUP PICKS UP A
PAPER SLIP IN FRONT OF ALL THE GROUP MEMBERS. THE NAME PICKED UP GETS THE WHOLE COLLECTION OF FUNDS. THAT NAME IS THEN REMOVED
FROM THE BOX. FOR THE NEXT MEETING, EVEN THOUGH THE MEMBER’S NAME WILL NOT BE SELECTED AGAIN, HE/SHE HAS TO BE PRESENT AND
CONTRIBUTE THEIR SHARE OF THE MONEY.
5.SPECIAL PURPOSE CHIT FUNDS
SPECIAL PURPOSE CHIT FUNDS ARE ORGANIZED TO SAVE FOR A PARTICULAR PURPOSE. FOR EXAMPLE, A GROUP OF NEIGHBORHOOD WOMEN COULD
GROUP TOGETHER TO ORGANIZE A SAVING SCHEME FOR DIWALI SWEETS. THIS DIWALI SWEETS FUND WOULD HAVE AN END DATE, WHICH IS USUALLY
ONE WEEK BEFORE DIWALI. THE FUND COLLECTED IS USED TO BUY AND PREPARE SWEETS IN BULK. THE PREPARED SWEETS ARE THEN DISTRIBUTED
AMONG ALL THE MEMBERS DURING DIWALI. SPECIAL PURPOSE CHIT FUNDS REDUCE THE COST AND ALSO THE EFFORT.
OTHER NAMES FOR CHIT FUNDS
CHIT FUNDS ARE KNOWN BY A NUMBER OF NAMES. 
1.INTERNATIONALLY, CHIT FUNDS ARE KNOWN AS ROTATING SAVINGS AND CREDIT
ASSOCIATIONS (ROSCA), THIS IS BECAUSE THEY PROVIDE A FACILITY OF SAVING
AND BORROWING SIMULTANEOUSLY.
2.IN INDIA, THEY ARE CALLED, 
3.CHIT, OR
4.CHITTY, OR 
5.KUREE. 
AFTER THE AMENDMENT OF THE CHIT FUNDS ACT IN 2019, THE FOLLOWING NAMES
HAVE ALSO BEEN ADDED. THESE ARE, 
6.FRATERNITY FUND, OR 
7.ROTATING SAVINGS, OR 
8.CREDIT INSTITUTIONS.
HOW DO CHIT FUND WORK?
IN A CHIT FUND SCHEME, A GROUP OF PEOPLE CONTRIBUTE PERIODICALLY TOWARDS THE CHIT
VALUE FOR A DURATION EQUAL TO THE NUMBER OF INVESTORS (MEMBERS OR SUBSCRIBERS). THE
AMOUNT COLLECTED IS GIVEN TO THE PERSON, WHO IS EITHER SELECTED THROUGH A LUCKY
DRAW (LOTTERY SYSTEM) OR AN AUCTION.
IN THE AUCTION ALLOTMENT SYSTEM, THE PERSON WHO BIDS THE LOWEST BID (AGREES TO
CLAIM THE LOWEST AMOUNT) GETS THE MONEY. THIS TYPE OF AUCTION SYSTEM IS KNOWN AS A
REVERSE AUCTION. THE AMOUNT FORGONE BY THE WINNING BIDDER IS THEN DISTRIBUTED
AMONG THE OTHER MEMBERS EQUALLY AFTER DEDUCTING THE FOREMAN’S COMMISSION AND
OTHER CHARGES. THE AMOUNT RECEIVED BY EACH MEMBER IS CALLED A DIVIDEND. EVEN AFTER
CLAIMING THE AMOUNT, THE WINNING BIDDER HAS TO CONTINUE INVESTING.
THE CHIT FUND BEGINS AT THE PRE-DECIDED DATE FOR THE NUMBER OF MONTHS EQUAL TO THE
NUMBER OF INVESTORS. THE SUBSCRIBERS CONTRIBUTE THEIR MONTHLY INSTALMENTS INTO THE
POT. AN OPEN AUCTION IS THEN CONDUCTED, ALLOWING THE MEMBERS TO BID FOR THE CHIT
FUND VALUE. THE SUBSCRIBER WHO IS WILLING TO TAKE THE LOWEST SUM IS ANNOUNCED THE
WINNER AND GETS TO TAKE THE CHIT FUND FOR THAT MONTH.
FEATURES OF CHIT FUNDS
•THEY ARE A CREDIT AND SAVINGS SCHEMES ROLLED INTO ONE.
•THEY HAVE PREDETERMINED VALUE AND DURATION.
•THEY ACT AS A MICROFINANCE INSTITUTION.
•THEY ALLOW YOU TO BORROW AT AN INTEREST RATE LOWER THAN
MONEYLENDERS.
•THEY ARE BEST FOR MEETING THE FINANCIAL REQUIREMENTS OF PEOPLE
BELONGING TO LOWER-INCOME HOUSEHOLDS.
•THE DEPOSITS MADE BY ALL THE SUBSCRIBERS ARE TURNED INTO A LUMP SUM.
BENEFITS OF CHIT FUNDS
THE BENEFITS OF CHIT FUNDS ARE
•SAVING AND INVESTMENT TOOL: CHIT FUNDS OFFER YOU THE ADVANTAGE OF SAVING AS WELL AS BORROWING.
•QUICK ACCESS TO MONEY: IT’S EASY TO JOIN A CHIT FUND SCHEME, AND YOU HAVE THE OPPORTUNITY TO BORROW THE
LUMP SUM (THE POT) BY JUST PAYING THE FIRST INSTALMENT.
•NO OR LESS PAPERWORK: IT’S A GREAT PRODUCT TO MEET THE FINANCIAL NEEDS OF PEOPLE WITHOUT PROVIDING
DOCUMENTS SUCH AS IT RETURNS, PAN CARD ETC.
•HIGH DIVIDEND: THE SUBSCRIBERS GET A DIVIDEND WHICH IS COMPARATIVELY HIGHER THAN THE INTEREST ACCRUED ON
THE MONEY SAVED IN VARIOUS DEPOSIT SCHEMES.
•NO COLLATERAL: UNLIKE BANKS AND OTHER FINANCIAL INSTITUTIONS WHICH ASK FOR TANGIBLE SECURITY, THE CHIT
FUND IS GIVEN ON PERSONAL SURETIES.
•FLEXIBILITY IN ITS USAGE: YOU CAN DRAW UPON YOUR CHIT FUND FOR ANY PURPOSE YOU WISH – MARRIAGES, SHOPPING,
TRAVEL, MEDICAL EXPENSES, RELIGIOUS CEREMONIES, FESTIVALS, CHILDREN’S EDUCATION, ETC.
•NO QUESTIONS ASKED: YOU DON’T NEED TO REVEAL THE PURPOSE OF USING THE BORROWED MONEY (THE POT).
•LOW INTEREST: THE SUBSCRIBERS MUTUALLY DETERMINE THE INTEREST RATE, AND IT VARIES FROM AUCTION TO AUCTION.
ADDITIONALLY, THE INTEREST RATE OF BORROWING FROM THE CHIT FUND IS COMPARATIVELY LOWER THAN OTHER FORMS
OF BORROWING.
•EMERGENCY CASH: YOU CAN EASILY ACCESS THE MONEY TO MEET AN UNEXPECTED EXPENSE OR A 
FINANCIAL EMERGENCY.
THINGS TO CONSIDER BEFORE INVESTING IN CHIT FUNDS
CHIT FUND CAN BE A RISKY INVESTMENT. HENCE YOU SHOULD TAKE THE FOLLOWING PRECAUTIONS
BEFORE INVESTING MONEY IN IT:
•MAKE SURE THAT YOUR CHIT FUND IS A REGISTERED COMPANY. CHECK THE CERTIFICATE OF
INCORPORATION FROM THE REGISTRAR OF THE COMPANIES.
•FIND OUT WHO THE PROMOTERS OF THE CHIT FUND COMPANY ARE. ENSURE THAT THEY ALL ARE
FINANCIALLY SOUND.
•CHECK THE REGISTRATION NUMBER AND CERTIFICATE ISSUED BY THE REGISTRAR OF CHIT FUNDS
OF THE STATE IN WHICH THE CHIT FUND COMPANY OPERATES.
•FIND OUT HOW MUCH COMMISSION THE FOREMAN TAKES. CHOOSE THE CHIT FUND COMPANY WITH
THE LOWEST COMMISSION.
•FIND OUT FROM THE OFFICE OF THE REGISTRAR OF CHIT FUNDS WHETHER THERE ARE ANY
COMPLAINTS OR PENDING COURT CASES AGAINST THE CHIT FUND COMPANY.
•ENSURE THAT YOU ARE FINANCIALLY PREPARED TO CONTRIBUTE THROUGHOUT THE CHIT FUND
CYCLE.
ROLE OF SEBI AND RBI IN CHIT
FUNDS.
THE RESERVE BANK OF INDIA (RBI) IS THE REGULATOR FOR BANKS AND OTHER
NON BANKING FINANCIAL COMPANIES (NBFCS) BUT IT DOES NOT REGULATE THE
CHIT FUND BUSINESS. WHILE CHIT FUNDS ACCEPT DEPOSITS, THE TERM ‘DEPOSIT’
AS DEFINED UNDER THE RESERVE BANK OF INDIA ACT, 1934 DOES NOT INCLUDE
SUBSCRIPTIONS TO CHITS. HOWEVER, THE RBI CAN PROVIDE GUIDANCE TO STATE
GOVERNMENTS ON REGULATORY ASPECTS LIKE CREATING RULES OR EXEMPTING
CERTAIN CHIT FUNDS. SEBI REGULATES COLLECTIVE INVESTMENT SCHEMES AS
THE REGULATOR OF THE SECURITIES MARKET.  BUT THE SEBI ACT, 1992
SPECIFICALLY EXCLUDES CHIT FUNDS FROM THEIR DEFINITION OF COLLECTIVE
INVESTMENT SCHEMES. IN THE RECENT SARADHA GROUP CASE, SEBI
INVESTIGATION DISCOVERED THAT SARADA WERE, IN EFFECT, OPERATING AS A
COLLECTIVE INVESTMENT SCHEME WITHOUT SEBI’S APPROVAL.
ADVANTAGES AND DISADVANTAGES OF CHIT
FUNDS
ADVANTAG DISADVANTAGE
ES S
1.
CHIT FUNDS ARE EASY TO JOIN. 1.
HIGH TRANSACTION COST.
2.
CHIT FUNDS HAVE KNOWN TO BE VULNERABLE TO
2.
THEY PROMISE HIGH RETURNS. SCAMS. 
3.
THE RATE OF INTEREST OF •SARADHA CHIT FUND SCAM: THE SCAM WAS RUN BY
SARADHA GROUP. THE GROUP COLLECTED 200 TO 300
BORROWING FROM CHIT FUNDS IS BILLION RUPEES BEFORE IT COLLAPSED IN 2013.
LOW.
4.
PEOPLE OF LOWER INCOME 3. THE BIGGEST RISK INVOLVING A CHIT FUND IS THE
MISUSE OF THE POOLED FUNDS BY THE FOREMAN. 
HOUSEHOLDS CAN ALSO PARTICIPATE. 4. SOMETIMES MEMBERS STOP PAYING THE DUES AND
5.
HELPS MICRO-ENTERPRISES TO HAVE ALREADY TAKEN THE FIRST BID.
DEVELOP. 5. IN CERTAIN CHIT FUNDS, DISCOUNT RATE IS
RIGGED, AND A DESPERATE MEMBER ENDS UP PAYING
A HIGHER DISCOUNT.
THANK YOU!!!