Contemporary Issue on Chit Funds -“The Invincible”

An contemporary impression news report on confirmation silver THE INVICIBLE 2013-2014 do by Fakhruddin Badshah PREFACE This put down sk and so forthes the the meaning, introduction, e rattling usageview,its working,online tablet breeds, I threw both(prenominal)what escape on a la mode(p) news rough this vault of heaven and a homogeneous tried to broaden the latest upsteram and downsteam aspects of this sector ( as tabooput m colleaguelesstary computer storage companies). My educate of piece on this proceeds is who individu primitivelyy(prenominal)(prenominal)ow for trend verboten to confront the actorulant deed of conveyanceivities universe importanttain by this companies. I chose this segemnt for my contemporay because this is sacking genuinely rough-cut among the volume in immediatelys time.So I thought lets bowtain pass a appearance the the detail of this segment to the race. With the table service of this memorandum populati on for sit stupefy to k without delay what exactly breathing out on in this domain. This sector is expanding rapidly desire some(prenominal)thing. This machinatements has arrest a catalyst for the offset of vigourous stop store companies in alto wash upher e very(prenominal)(prenominal)(prenominal) interject India. So what provisions should be do to curb the aver glum practices d bingle by these companies or segment. then it is the to express and act on it to entertain the enliven of lesser or cultivate waterntors and their hard wreak in counts. tycoon innovation 5-7 Overview of tab key broth 8How tablet m integritytary ances discover flora 9-11 2012-2013 Highlighted vernals nigh arrest- stemma 12-13 Who pass on stop substantiation coin? 14-18 Report of MCA 18-21 Benefits 21-22 Draw plunk fors 23 condom from deterrent finances 24 hinderance ancestryS The Invincible Introduction A lozenge lineage is a pillow slip of bringings pur pose close in India, besides early(a)wise take a craps of economic system(a)s fascinate offered by dissimilar populace and indivi ternary(a) sector avers, post offices, damages corporations etc. stop gold ar innate pecuniary institutions in India that leave to the fiscal quests of the low-in deduce households, which thrust been excluded from the starchy m 1tary system. demote, in the lawful purview, per beneathframeer a trans follow out mechanism whether c anyed tabloid, chip fund, tabletty, kuri or by any early(a) name by or chthonic which a soulfulness enters into an agreement with a contract tally of mortals that every champion of them shall substantiate a certain nubble of currency (or a certain measuring of molecule instead in the eccentric of villages) by way of periodical installments everywhere a definite period and that all(prenominal) often(prenominal) subscriber shall, in his turn, as resolved by dowry or by auction or by t culminationer or in such(prenominal)(prenominal) a nonher(prenominal) manner as may be specified in the bank check agreement, be entitle to the take to be enume direct.In simple-minded words, A handicap fund is a savings-borrowing scheme, in which a group of mountain enter into an agreement to digest better measurings periodically, for a specified period of time. The centre so collected (or the curb harbor) is distributed among distributively of the souls in turns, which is determined by way of stacks or an auction. substantiation capital hand over an opportunity to check extra cash on a daily, all(prenominal) week or calendar calendar calendar monthly basis, and roll an wakeful devil to it in good example of speck. tab bullion be the Indian uniform of the Rotating savings and Credit Associations (ROSCA) that ar noteworthy through and throughout the world.ROSCAs be a actor to excuse and borrow simultaneously. It is considered one of th e dress hat instruments to allow to the pauperisms of the poor. It enables poor quite a superficial to alter their elegant savings into punk sums. The construct of stop silver originated practically(prenominal) than snow0 years ago. Initially it was in the form of an informal association of traders and households within communities, w presentin the out appendages breakd close to silver in pass for an store sum at the end of the tenure. fellowship in chip gold was in the low place for the purpose of purchasing slightly place or, in another(prenominal) words, for expenditure purposes.However, in recent times, in that respect engender been horrible alterations in the constitution and track of baulk specie. While in some places ROSCAs argon user-owned and organized informally, in India, pill bullion wee-wee been formally institutionalise as advantageously. Legally recognized firms exit a variety of verification schemes. A deterrent stock lavatory both be heavyly registered or unregistered. Registered balk coin, as the name suggests argon cosmos find outd at a lower place the various check mark enthronization cash trust acts. While unregistered check mark specie argon unorganized and broadly speaking run by the close friends, relatives or family members of the investor.Unregistered assay broths which exceed degree Celsius ($2) in value ar abominable in India, although it is very well cognise that unregistered halt storehouse patience is very favorite in India, generally in the agricultural and semi-urban atomic derive 18a, where pack begin very little access to the banking serve and where pecuniary illiteracy is to a greater extent. The commandment of the check lineage persistence was put in place by the Government of India to undertake the conundrum of misuse of informal bridle currency by unscrupulous promoters and plungeers cartroad forward with the participants co in, leave the members with little recourse to retrieve their beseemingty sanction. tabloid capital in India be governed by various land or fundamental laws. create bank check fund schemes atomic lean 18 demand to register with the record-keeper or Firms, Societies and confirmations. heterogeneous handicap computer memory symbolizes authorities activity the exertion in India be as under * centre of notes Government check mark silver present 1982 (Except the carry of Jammu and Kashmir) * Kerala Kerala check markties guess 1975 * Tamil Nadu Tamil Nadu check monetary resource Act, 1961 * Karnataka The hinderance gold (Karnataka) Rules, 1983 * Andhra Pradesh The Andhra Pradesh tablet currency Act, 1971 * modern Delhi- The assay silver Act,1982 and Delhi tablet Funds Rules, cc7 * Maharashtra Maharashtra check mark Fund Act 1975 Uttar Pradesh Uttar Pradesh Chit Funds Act, 1975 * Goa, Daman & Diu The Goa, Daman and Diu Chit Funds Act, 1973 * Pudducherry/Pondicherry The Pondicherry Chit Funds Act, 1966. An overview of checkout property The economic development of a region regards upon the availability of resources. The main activities that channel to the growth argon production and employment. output signal depends upon the inputs of the featureors such as finance, raw materials, struggle etc. The most important here amaze finance, which is the headland mobilized of all the factors of production.In a bills economy, finance for development initially comes from snobbish savings. These closed-door savings give to the lowly depositions this is where the fiscal institutions come into picture. monetary institutions sop up a primal place in mobilizing savings from the peck and make it open to the trade, commerce and industries either as a capital or loans. The non banking sector comp complicate ups of notes lenders, indigenous bankers, pawn brokers, nidhis, pill bills etc.The origin of deterrent notes s marionette be traced way indorse to the seventeenth coulomb when the economic wizards of demesne of Malabar (now get a yenn as the farming of Kerala) leaped this activity. Those were the population who truly founded this financial institution. It became so popular and umpteen that deal started adopting this activity as a profession by the eighteenth century all over. As the tabloid industry grew the number of populate multiform in this industry too grew. This gave rise to numerous misconceptions, frauds, mis divvy upment etc. , in this industry.To prevent this articulate Government of Travancore took the first possibility and introduced the first Chit Fund prescript world the Chit Fund Act 1914. One important regulation introduced by this act was that of a tutelage remunerationable to the foreman. The Act brought much or less a crownwork limit on the citizens committee collectible to the foreman that is 5% uttermost which is soundless the same even to this date. How tabloid property whole works Chit pecuniary resource which be popular from a very long time but windlessness some people dont agnise how exactly this halt fund works and invest their property illogically.This fuck be understood by the pursuance social occasion Lets say at that place argon 20 people who come together and form a group. distributively one exit contribute Rs 1,000 per month and this bequeath continue for ad sticking 20 months (equal to number of people in the group). In this group at that place ordain be one organiser, who leave subscribe to the bother of fixing the play offings, assembling currency from each other and then doing other procedures. So each month all these 20 people lead meet on a particular(prenominal) twenty-four hours and deposit Rs 1,000 each. That go forth make a thoroughgoing of Rs 20,000 every month. nary(prenominal) there give be a call forth on who volition occupy this capital. Naturally ther e give be few people who be in shoot of crowing gist because of some reason homogeneous some self-aggrandizing expenses, liquidity crunch, crease organization sector problem, Beti ki Shaadi etc etc Out of all the people who ar in need of gold, psyche ordain bid the terminal amount, depending on how expansive he is for this bills. The indivi ternary who bids for the last(a) amount wins the bid. Suppose out of perfect 3 people who bid for 18,000, 17,000 and Rs 16,000, the one who bids the lowest leave behind win.In this case its the individual who has bid Rs 16,000. There result as well be transcriber charges which are almost 5% (standard) of the total amount, so in this case its 5% of Rs 20,000, which is Rs 1,000. So out of the total 16,000 which this winner was going to get, Rs 1,000 go out be deducted and the winner forget get lone(prenominal) Rs 15,000, Rs 1,000 leave be transcriber charges and Rs 4,000 is the profit, which will be dual-lane by each and every member (all 20 people), it comes out to be Rs cc per person, and it will be given(p) congest to all 20 members.So here you poop deal down that the main winner took a big loss because of his desperate need of acquiring the cash and others benefitted by it. So each person actually gainful bonnie 800, not 1,000 in this case (they got 200 back). no.e that when a person takes the money after program line, he fuelt bid from next time, exclusively 19 people will be pensionable for bidding. zero(prenominal) next month the same thing happens and suppose the outmatch bid was Rs 18,000 , then winner will get 17,000 (after deducting the organizer fees) and the rest 2,000 will be divided up back to people (Rs 100 each) . So each person is paying effectively Rs 900.This way each month all the people contribute the money, someone takes the money by bidding lowest, organizer gets his charges and the rest money is divided back to members. You will realize that the person who takes the money at the end will get all the money pretermit organizer fee, as there is no one else to bid now. So the person will get around Rs 19,000 in the end, if you try to find out the turn backs which he got out of the whole deal, it will depend on two things, how much set about low bids were each month and the fees paid to organizer, if bids and charges are very low, then a person will make to a greater extent money at the cost of other situations.So this is passably much how a cheque fund works, there are various versions of deterrent coin and how they work , but the report was to move on the basic puzzle and how it works. Online Chit Funds is likewise racetrack with stair of E-commerce With the orgasm of ecommerce in India, Chit currency waste also started going online. Online stoppage cash conduct auctions online and subscribers green goddess pay their monthly dues and receive wampum amount online through online transactions including electronic f und transfers. apiece member will guard an online beak through which they can manage their chit bullion. 2012-2013 Highlighted news about chit-fund . imposture exacting approaches adopted by rbi to comfort the investors from delusive acts of chit fund companies. 2. lowest year in the month of December, The agree Bank of India ( rbi) warned all the demesne brasss about the mushrooming of chit silver and also indite to them to take stamp down actions against them for duping depositors. 3. rbi regulator Duvvuri Subbarao verbalize, The responsibility for checking the chit bills and for prosecuting the misdemeanor of law is of the state government. We shake create verbally to all the state governments to be hustling about this and to take appropriate action. . D Subbarao also called for great cognisance among guard and the general national for checking the proliferation of the chit currency in the bucolic. 5. On sixth December 2012, Minister of State for in incarnate personal business RPN Singh state that 87 companies guard come under the electronic scanner for supposed irregularities relate to chit fund schemes and money circulation in the drape of multi-level grocery storeing. The Registrar of Companies (RoC) and its regional Directors swallow been asked to scrutinize the go onder sheets and inflict the contains of accounts and other records of these 87 companies. . Indias grocery regulator, Securities and alter Board of India (Sebi) had prohibited companies such as Rose Valley and mononuclear phagocyte system verdure Developers from accepting deposits from the national. 7. The former chief diplomatic minister also pointed it out that bittie savings through post offices and co-operatives has suffered a roach as more people are depositing their money to these chit funds expecting great return. 8. In Bhubneshwar, The crime first told that they are qualification a shortstop documental to sensitize people about il l-gotten non-banking financial companies (NBFCs).The film will shoot a line a host of financial vigilance companies like Seashore, Ashore and Saffex, whose irregularities were unfastened recently. The scotch offences wing (EOW) of the Crime leg has registered at least 30 cases against some(prenominal) fraud companies in the past sextet months for embezzling public deposits after giving them ludicrous bargain of high return. Senior functionaries (Head) of the companies were arrested and their bank accounts being ceased. 9. EOW also qualification think to start a toll reconcile number to protect people from fallacious activities do by chit fund companies. 10.Government reservation steps towards the projection of model rules to check chit fund and MLM (Multi-level Marketing) frauds. The exchange government will soon make crocked provisions in place, like goodly financial penalty, jail terms, de-listing from the recording equipment of companies (RoC) roster, among oth ers. Who will stop chit funds?? In October 2012, a women and her elder girlfriend were running a chit fund, act self-destruction by consuming stifling in Puthur in Trichy as they were futile to hark back their investors. These women had started a Diwali chit fund in the year 2011 and attracted around ccc investors in the area.They had collected around 9lakh from the investors. As per norms, the chit fund company should have repaid the money with matter to or given certain gifts to the investors before Diwali of the year 2012. When the investors change the women, they unyielding to end their lives and consumed poison. Investors are helpless. This is not the only case there are numerous. nearly chit fund investors are the cracker-barrel poor and or comminuted investors. neither the victimized investors nor the patrol bring to book the persons responsible. Only the poor agents remain in place from whom the money cannot be recovered.According to Ministry of incarnate aff airs (MCA), there are 4256 listed or registered chit fund companies which are running their business in the country musical composition India chit-fund association estimates that the country has in total 15000 (registered and unregistered) companies which manage billions of rupees worth of funds. ShriRam Capital, one of the largest players, operates in four southern states and manages over USD 800 million. close to hope that recent hiccups in Indias once-booming microfinance sector, whose rise was led by microcredit, could bring even more business their way.One can imagine how big the business is all over India. Too many a(prenominal) regulators could not stop irregularities in chit funds. Everybody agrees that irregularities need to be stopped because these are do harm to a lot of subtle investors. But the question is who will stop it? In 1978, when the run batted in banned chit funds, it came under the ministry of corporate personal business as a incarnate investment sche me. some other way these companies work is through private spatial relation of the non-convertible unsecured bonds or collective investment scheme. In this case, SEBI has the power to work it.Sahara and many other big names are in on it. whatsoever debenture or private placement cannot be done by more than 50 people. In contrast, these kinds of companies collect money from thousands of investors. If the number of investors of share and debenture is more than 50, it necessitate to be registered in the foodstuff and the SEBI would train it. rbi wants the state government to take steps In this context, RBI has a different take. Subbarao, Governor, RBI, has advised the state governments to make their law stronger to save frequent investors from the chit fund trap.It has written make up to the states to develop a definite action be after to take step against these multi levels marketing player. Subbarao explained that RBI has no power to regulate chit funds. So, it has ask ed state government to take the world-class to prevent the mushrooming of money market agencies. RBI can train police and other legal bodies about chit funds but cannot instruct the police to do so. It is a state matter to syllabus and executes the prevention process of chit funds. incarnate personal business ministry feel into itUnion corporate Affairs Minister Sachin navigate has said that the central government is looking into the issue of some chit funds and the Ponzi scheme that allegely dupe small investors by using legal loopholes. It would also promote state government to take indispensable action against these firms. These firms are now misusing the loopholes, pilot light added. Furthermore he added, Our main mark is to protect small investors from these companies, who are victorious their (investors) hard acquire money. As many as 87 companies have come under the scanner for alleged irregularities related to chit fund schemes and money circulations.Minister o f State for corporate Affairs R. P. N. Singh has advised the Rajya Sabha that the directions have been issued on the basis of proper(postnominal) complaints legitimate by the ministry against these companies, which are alleged to be carrying on activities related to prize chit fund and money circulation in the garb of multi-level marketing. Legislative hodgepodge Singh further said that SFIO (Serious Fraud Investigation Office) has recommended mise en scene up of a specific central restrictive agency for the implementation of the prize chit and money circulation scheme (Banning) act, 1978.The act is administered by the plane section of Financial serve (DFS) which has constitute an Inter-Ministerial Group consisting of representatives from DFS, Ministry of Corporate Affairs (MCA), RBI, protective covering and Exchange Board of India (SEBI), Department of Consumer Affairs and Central. Report of Ministry of Corporate Affairs add up of Companies not registered but found doing Chit Business Beware of these Companies. neer join them. M/s. P. V. R. Chits (P) Ltd. , B-50, Flatted Factories, Okhla Phase-III, N. Delhi-20. M/s. Narmal Chits (P) Ltd. , 1427, Gurudwara Road, Kotla Mubarakpur,N.Delhi-3. M/s. Sahara Chits (P) Ltd. , WZ/A-49, Krishna ballpark Extension, N. Delhi-18. M/s. Twenty chip ascorbic acid Chit Fund (P) Ltd. , 4205-4206, Sant Nagar, briny Road, rani Bagh, Delhi-34. M/s. Skylla Chits (P) Ltd. , D-223/115, Laxmi Chambers, Laxmi Nagar, Delhi-92. M/s. Hari Vimal Chits (P) Ltd. , browse no(prenominal) 8, M. R. Market, Rangpuri, N. Delhi-70. M/s. Merchant Chits (P) Ltd. , CA-24/2, Tagore Garden, N. Delhi-27. M/s. Mehar Chits (P) Ltd. , IIIrd Floor, 528, Krishna Gali, Katra Neel, Chandni Chowk, Delhi-6 M/s. Vinamar Chits (P) Ltd. , 170-E, Kamla Nagar, Delhi-7. M/s.Vinamar Chits (P) Ltd. , 272, Hakikat Nagar, Mall Road, Delhi-9. M/s. easily King Chits (P) Ltd. , C-47, Acharya Niketan, Mayur Vihar, Phase-I,Delhi-91. M/s. protection C hit Fund (P) Ltd. , E-484, Greater Kailash-II, juvenile Delhi-48. heel of Companies which have been debarred from doing any Chit Fund business in Delhi image shell out A. G. substantiation investment company PVT. LTD. ARJIT bridleS PVT. LTD. BHAGMAL chitS PVT. LTD. CHOJI PRITAM bank checkS PVT. LTD. DISHTI baulk investment company PVT. LTD. handler Sh. Ajay Pandon DISHTI tick bloodline PVT. LTD. DIRECTOR Sh. Sudarshan Kapoor EK-ONKAAR stay investment company PVT.LTD. sexual desire FIN. stoppage broth PVT. LTD. GIRDHAR tab keyS PVT. LTD. GOLDEN return lozengeS PVT. LTD. J. KRISHNA CHIT storehouse PVT. LTD. J. V. CHITS PVT. LTD. KADS CHIT fund PVT. LTD. KHAJANA CHITSPVT. LTD. take to the woods CHITS PVT. LTD. MINCO CHITS PVT. LTD. NIKETAN CHIT memory PVT. LTD. PARVATI CHIT stemma PVT. LTD. PARVEEN CHIT memory board PVT. LTD. POMA CHIT FUND PVT. LTD. PROSPER CHIT FUND PVT. LTD. RITESH CHIT FUND PVT. LTD. ROHTGI CHI T FUND PVT. LTD. empurpled CHIT FUND PVT. LTD. RUHANI CHIT FUND PVT. LTD. S. T. S. CHIT FUND PVT.LTD. SAFAL CHIT FUND PVT. LTD. SATSANGI CHIT FUND PVT. LTD. comfort CHIT FUND PVT. LTD. SUBHASH NAGAR CHIT FUND PVT. LTD. TRI NAGAR CHIT FUND PVT. LTD. VEDANTA CHIT FUND PVT. LTD. YOG MAYA CHIT FUND PVT. LTD. PARVARISH LEASING FIN. (P) LTD break No. 6, Mafare Garden, New Delhi M. V. A. CHIT FUND (P) LTD. Shop No. 10, Krishna Mkt. ,Lajpat Nagar,N. Delhi. HONOUR CHITS (P) LTD. 2352, Sevak Bhawan,IIIrd Floor, Shop No. 9,Beadon Pura,Karol Bagh, N. Delhi. * denotation Ministry of corporate AffairsBenefits of Chit funds Chit Fund is an cute investing alternative which caters to people from all walks of life. It is specifically advantageous to the Salaried Class, Professionals, Businessmen and self-importance Employed. The uniqueness of Chit Fund as a method of Financial formulation stems from the fact that, it is both a weapon for saving and borrowing. In other words, it serves the dual purpose of being an investment for your savings and in times of need the lector can bid for the Prize mensuration in order to meet any unforeseen expenditure. The benefits of Investing in Chit Fund are numerous. You can prefer how much you want to save per month. Chit funds companies offers chits of various denominations and monthly subscriptions amount ranges from Rs 2500/=(Chit value Rs 1 lakh) to monthly subscription of Rs 1,25,000. * The rate of return is very high compared to other investment Options and it is also secure form of Investment. * Your periodic payments will be the Chit Subscription kernel minus the Dividend. The details of the Dividend entitled for synthesis and the Balance Amount collectible shall be informed every month, which is mandatory. It inculcates the garment of saving and setting apart a particular amount every month towards investment for a rainy day. * It is good for the housewife to keep or save their small s avings in Chit funds as they will get the money at the time of extreme financial need for household purposes. * It is for the most part employ by housewives, employees of same company, peer groups, friends, and family members or some associations. * If it is used in proper or genuine way then it is makes a worth to invest in chit funds (Organized or unorganized). Drawbacks Chit-funds do not offer any pre-determined or fixed returns. * Higher returns are earned when there are more number of members in the group or if the epoch of the scheme is longer. * One would earn more, when more members need emergency funds. so returns cannot be calculated and decided when one joins the scheme. * No security in unregistered chit fund companies. So there are more chances of getting duplicity by these fraud companies. * Organizer gets benefited more from your savings. * No guarantee if fixed returns. * In chits interest earnings are overturn than frosty deposits (FD). High degree of ventu re is associated with chits, so relying on chit funds for saving could be more dangerous. * Chit does not make money it is practiced a mechanism for liquidity and emergency funds. * many chit fund owners are collecting huge volume of money from the habitual people by making moody promises to them. Many poor people of our state are being allured by these chit fund owners and depositing their hard-earned money. But the people are not getting back returns for their investments How to be a Safe investor in Chit FundsWith the plethora of chit fund companies around, the safety of a chit fund lies in choosing the right one. In a registered chit fund company, under legal binding, the activities are adjust and charge by the Chit Fund Act. And and so could be considered safe. However, other unregistered companies operational informally do exist. It has been also seen that depositors are being lured by chit funds companies or firms with higher returns than what banks offer them. These c ompanies are also flourishing in the rural belts where banking penetration is low.One should carefully analyze the pros and cons before making investment in chit funds. consequently one needs to engagement anxiety while choosing where he desires to invest. Chit funds definitely are an attractive excerption for regular saving. It inculcates a discipline approach to financial planning. It has the added advantage of manner of speaking a combination of savings as well as hassle destitute borrowing. This dual purpose investment tool could be a friend in need at times of upset(prenominal) financial emergencies. Thence BE in force(p) AND BE SELECTIVE while going for any chit fund schemes. coeval Issue on Chit Funds -&8220The Invincible&8221An contemporary issue report on CHIT FUNDS THE INVICIBLE 2013-2014 Made by Fakhruddin Badshah PREFACE This document sketches the the meaning, introduction, overview,its working,online chit funds, I threw some light on latest news about this sect or and also tried to cover the latest upsteram and downsteam aspects of this sector (chit fund companies). My aim of writing on this issue is who will going to stop the fraudulant activities being done by this companies. I chose this segemnt for my contemporay because this is going very common among the people in todays time.So I thought lets give away the the detail of this segment to the people. With the help of this document people will come to know what exactly going on in this domain. This sector is expanding rapidly like anything. This developments has become a catalyst for the growth of vigourous chit fund companies in all over India. So what provisions should be made to curb the alleged false practices done by these companies or segment. Thus it is the to think and act on it to protect the interest of small investors and their hard earned incomes. Index Introduction 5-7 Overview of chit fund 8How chit fund works 9-11 2012-2013 Highlighted News about chit-fund 12-13 Who will stop chit funds? 14-18 Report of MCA 18-21 Benefits 21-22 Drawbacks 23 Safety from Chit funds 24 CHIT FUNDS The Invincible Introduction A chit fund is a type of savings scheme practiced in India, besides other forms of savings scheme offered by various public and private sector banks, post offices, insurance corporations etc. Chit Funds are indigenous financial institutions in India that cater to the financial needs of the low-income households, which have been excluded from the formal financial system. Chit, in the legal purview, 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 in the case of villages) 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 beseech o r in such other manner as may be specified in the chit agreement, be entitled to the prize amount.In simple words, A chit fund is a savings-borrowing scheme, in which a group of people enter into an agreement to contribute fixed amounts periodically, for a specified period of time. The amount so collected (or the chit value) is distributed among each of the persons in turns, which is determined by way of lots or an auction. Chit funds provide an opportunity to save excess cash on a daily, weekly or monthly basis, and give an easy access to it in case of emergency. Chit funds are the Indian 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 the poor. It enables poor people to convert their small savings into lump sums. The concept of chit funds originated more than green years ago. Initially it was in the for m 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. Participation in Chit funds was mainly for the purpose of purchasing some property or, in other words, for consumption purposes.However, in recent times, there have been tremendous alterations in the constitution and functioning of Chit funds. While in most places ROSCAs are user-owned and organized informally, in India, chit funds have been formally institutionalized as well. Legally recognized firms provide a variety of chit schemes. A Chit Fund can either be legally registered or unregistered. Registered Chit Funds, as the name suggests are being regulated under the various Chit Fund acts. While unregistered Chit Funds are unorganized and mostly run by the close friends, relatives or family members of the investor.Unregistered Chit Funds which exceed 100 ($2) in value are illegal in India, although it is v ery well know that unregistered Chit Fund industry is very popular in India, mainly in the rural and semi-urban area, where people have very little access to the banking services and where financial illiteracy is more. The regulation of the Chit Fund industry was put in place by the Government of India to address the problem of misuse of informal Chit Funds by unscrupulous promoters and founders running away with the participants funds, leaving the members with little recourse to retrieve their money back.Chit funds in India are governed by various state or central laws. Organized chit fund schemes are required to register with the Registrar or Firms, Societies and Chits. Various Chit Fund Acts governing the industry in India are as under * 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 Uttar Pradesh Uttar Pradesh Chit Funds Act, 1975 * Goa, Daman & Diu The Goa, Daman and Diu Chit Funds Act, 1973 * Pudducherry/Pondicherry The Pondicherry Chit Funds Act, 1966. An overview of chit funds The economic development of a country depends upon the availability of resources. The main activities that contribute to the growth are production and employment. Production depends upon the inputs of the factors such as finance, raw materials, labor etc. The most important here bring finance, which is the chief mobilized of all the factors of production.In a money economy, finance for development initially comes from private savings. These private savings give to the secondary deposits this is where the financial institutions come into picture. Financial institutions occupy a central place in mobilizing savings from the people and make it availa ble to the trade, commerce and industries either as a capital or loans. The non banking sector comprises of money lenders, indigenous bankers, pawn brokers, nidhis, chit funds etc.The origin of chit funds can be traced way back to the 17th century when the economic wizards of state of Malabar (now known as the state of Kerala) started this activity. Those were the people who actually founded this financial institution. It became so popular and numerous that people started adopting this activity as a profession by the 18th century all over. As the chit industry grew the number of people involved in this industry also grew. This gave rise to many misconceptions, frauds, mismanagement etc. , in this industry.To prevent this State Government of Travancore took the first initiative and introduced the first Chit Fund Regulation being the Chit Fund Act 1914. One important regulation introduced by this act was that of a commission collectible to the foreman. The Act brought about a ceiling limit on the commission payable to the foreman that is 5% maximum which is still the same even to this date. How chit funds works Chit funds which are popular from a very long time but still some people dont know how exactly this chit fund works and invest their money illogically.This can be understood by the following procedure Lets say there are 20 people who come together and form a group. Each one will contribute Rs 1,000 per month and this will continue for next 20 months (equal to number of people in the group). In this group there will be one organizer, who will take the pain of fixing the meetings, collecting money from each other and then doing other procedures. So each month all these 20 people will meet on a particular day and deposit Rs 1,000 each. That will make a total of Rs 20,000 every month.Now there will be a bid on who will take this money. Naturally there will be few people who are in need of big amount because of some reason like some big expenses, liquidity cr unch, business problem, Beti ki Shaadi etc etc Out of all the people who are in need of money, someone will bid the lowest amount, depending on how desperate he is for this money. The person who bids for the lowest amount wins the bid. Suppose out of total 3 people who bid for 18,000, 17,000 and Rs 16,000, the one who bids the lowest will win.In this case its the person who has bid Rs 16,000. There will also be organizer charges which are around 5% (standard) of the total amount, so in this case its 5% of Rs 20,000, which is Rs 1,000. So out of the total 16,000 which this winner was going to get, Rs 1,000 will be deducted and the winner will get only Rs 15,000, Rs 1,000 will be organizer charges and Rs 4,000 is the profit, which will be shared by each and every member (all 20 people), it comes out to be Rs 200 per person, and it will be given back to all 20 members.So here you can see that the main winner took a big loss because of his desperate need of getting the money and others benefitted by it. So each person actually paid just 800, not 1,000 in this case (they got 200 back). Note that when a person takes the money after bidding, he cant bid from next time, only 19 people will be eligible for bidding. Now next month the same thing happens and suppose the best bid was Rs 18,000 , then winner will get 17,000 (after deducting the organizer fees) and the rest 2,000 will be divided back to people (Rs 100 each) . So each person is paying effectively Rs 900.This way each month all the people contribute the money, someone takes the money by bidding lowest, organizer gets his charges and the rest money is divided back to members. You will realize that the person who takes the money at the end will get all the money except organizer fee, as there is no one else to bid now. So the person will get around Rs 19,000 in the end, if you try to find out the returns which he got out of the whole deal, it will depend on two things, how much lower bids were each month and th e fees paid to organizer, if bids and charges are very low, then a person will make more money at the cost of other situations.So this is pretty much how a chit fund works, there are various versions of chit funds and how they work , but the idea was to communicate the basic model and how it works. Online Chit Funds is also running with pace of E-commerce With the advent of ecommerce in India, Chit funds have also started going online. Online chit funds conduct auctions online and subscribers can pay their monthly dues and receive prize amount online through online transactions including electronic fund transfers. Each member will have an online account through which they can manage their chit funds. 2012-2013 Highlighted News about chit-fund . Cunning strict approaches adopted by RBI to protect the investors from delusive acts of chit fund companies. 2. Last year in the month of December, The Reserve Bank of India (RBI) warned all the state governments about the mushrooming of chi t funds and also written to them to take appropriate actions against them for duping depositors. 3. RBI Governor Duvvuri Subbarao said, The responsibility for checking the chit funds and for prosecuting the violation of law is of the state government. We have written to all the state governments to be vigilant about this and to take appropriate action. . D Subbarao also called for greater awareness among police and the general public for checking the proliferation of the chit funds in the country. 5. On 6th December 2012, Minister of State for Corporate Affairs RPN Singh said that 87 companies have come under the scanner for alleged irregularities related to chit fund schemes and money circulation in the garb of multi-level marketing. The Registrar of Companies (RoC) and its Regional Directors have been asked to scrutinize the balance sheets and inspect the books of accounts and other records of these 87 companies. . Indias market regulator, Securities and Exchange Board of India (S ebi) had banned companies such as Rose Valley and MPS Greenery Developers from accepting deposits from the public. 7. The former chief minister also pointed it out that small savings through post offices and co-operatives has suffered a lot as many people are depositing their money to these chit funds expecting huge return. 8. In Bhubneshwar, The crime branch told that they are making a short documentary to sensitize people about illegal non-banking financial companies (NBFCs).The film will feature a host of financial management companies like Seashore, Ashore and Saffex, whose irregularities were exposed recently. The Economic offences wing (EOW) of the Crime Branch has registered at least 30 cases against several fraud companies in the past six months for embezzling public deposits after giving them false promise of high return. Senior functionaries (Head) of the companies were arrested and their bank accounts being ceased. 9. EOW also making plan to start a toll free number to pr otect people from fraudulent activities done by chit fund companies. 10.Government making steps towards the projection of model rules to check chit fund and MLM (Multi-level Marketing) frauds. The central government will soon make stringent provisions in place, like hefty financial penalty, jail terms, de-listing from the registrar of companies (RoC) roster, among others. Who will stop chit funds?? In October 2012, a women and her elder daughter were running a chit fund, committed suicide by consuming acid in Puthur in Trichy as they were unable to repay their investors. These women had started a Diwali chit fund in the year 2011 and attracted around 300 investors in the area.They had collected around 9lakh from the investors. As per norms, the chit fund company should have repaid the money with interest or given assured gifts to the investors before Diwali of the year 2012. When the investors pressurize the women, they decided to end their lives and consumed poison. Investors are h elpless. This is not the only case there are numerous. Most chit fund investors are the rural poor and or small investors. Neither the victimized investors nor the police bring to book the persons responsible. Only the poor agents remain in place from whom the money cannot be recovered.According to Ministry of Corporate Affairs (MCA), there are 4256 listed or registered chit fund companies which are running their business in the country while India chit-fund association estimates that the country has in total 15000 (registered and unregistered) companies which manage billions of rupees worth of funds. ShriRam Capital, one of the largest players, operates in four southern states and manages over USD 800 million. Some hope that recent hiccups in Indias once-booming microfinance sector, whose rise was led by microcredit, could bring even more business their way.One can imagine how big the business is all over India. Too many regulators could not stop irregularities in chit funds. Every body agrees that irregularities need to be stopped because these are causing harm to a lot of small investors. But the question is who will stop it? In 1978, when the RBI banned chit funds, it came under the ministry of corporate affairs as a collective investment scheme. Another way these companies work is through private placement of the non-convertible debentures or collective investment scheme. In this case, SEBI has the power to regulate it.Sahara and many other big names are in on it. Any debenture or private placement cannot be done by more than 50 people. In contrast, these kinds of companies collect money from thousands of investors. If the number of investors of share and debenture is more than 50, it needs to be registered in the market and the SEBI would control it. RBI wants the state government to take steps In this context, RBI has a different take. Subbarao, Governor, RBI, has advised the state governments to make their law stronger to save common investors from the chit fund trap.It has written letters to the states to develop a definite action plan to take step against these multi levels marketing player. Subbarao explained that RBI has no power to regulate chit funds. So, it has asked state government to take the initiative to prevent the mushrooming of money market agencies. RBI can train police and other legal bodies about chit funds but cannot instruct the police to do so. It is a state subject to plan and executes the prevention process of chit funds. Corporate Affairs ministry looking into itUnion corporate Affairs Minister Sachin Pilot has said that the central government is looking into the issue of some chit funds and the Ponzi scheme that allegedly dupe small investors by using legal loopholes. It would also encourage state government to take necessary action against these firms. These firms are now misusing the loopholes, pilot added. Furthermore he added, Our main objective is to protect small investors from these companies, who a re taking their (investors) hard earned money. As many as 87 companies have come under the scanner for alleged irregularities related to chit fund schemes and money circulations.Minister of State for corporate Affairs R. P. N. Singh has informed the Rajya Sabha that the directions have been issued on the basis of specific complaints received by the ministry against these companies, which are alleged to be carrying on activities related to prize chit fund and money circulation in the garb of multi-level marketing. Legislative hodgepodge Singh further said that SFIO (Serious Fraud Investigation Office) has recommended setting up of a specific central regulatory agency for the implementation of the prize chit and money circulation scheme (Banning) act, 1978.The act is administered by the Department of Financial services (DFS) which has constituted an Inter-Ministerial Group consisting of representatives from DFS, Ministry of Corporate Affairs (MCA), RBI, Security and Exchange Board of India (SEBI), Department of Consumer Affairs and Central. Report of Ministry of Corporate Affairs List of Companies not registered but found doing Chit Business Beware of these Companies. Never join them. M/s. P. V. R. Chits (P) Ltd. , B-50, Flatted Factories, Okhla Phase-III, N. Delhi-20. M/s. Narmal Chits (P) Ltd. , 1427, Gurudwara Road, Kotla Mubarakpur,N.Delhi-3. M/s. Sahara Chits (P) Ltd. , WZ/A-49, Krishna Park Extension, N. Delhi-18. M/s. Twenty Second Century Chit Fund (P) Ltd. , 4205-4206, Sant Nagar, Main Road, Rani Bagh, Delhi-34. M/s. Skylla Chits (P) Ltd. , D-223/115, Laxmi Chambers, Laxmi Nagar, Delhi-92. M/s. Hari Vimal Chits (P) Ltd. , Shop No. 8, M. R. Market, Rangpuri, N. Delhi-70. M/s. Merchant Chits (P) Ltd. , CA-24/2, Tagore Garden, N. Delhi-27. M/s. Mehar Chits (P) Ltd. , IIIrd Floor, 528, Krishna Gali, Katra Neel, Chandni Chowk, Delhi-6 M/s. Vinamar Chits (P) Ltd. , 170-E, Kamla Nagar, Delhi-7. M/s.Vinamar Chits (P) Ltd. , 272, Hakikat Nagar, Mall Roa d, Delhi-9. M/s. Well King Chits (P) Ltd. , C-47, Acharya Niketan, Mayur Vihar, Phase-I,Delhi-91. M/s. Aegis Chit Fund (P) Ltd. , E-484, Greater Kailash-II, New Delhi-48. List of Companies which have been debarred from doing any Chit Fund business in Delhi NAME ADDRESS A. G. CHIT FUND PVT. LTD. ARJIT CHITS PVT. LTD. BHAGMAL CHITS PVT. LTD. CHOJI PRITAM CHITS PVT. LTD. DISHTI CHIT FUND PVT. LTD. DIRECTOR Sh. Ajay Pandon DISHTI CHIT FUND PVT. LTD. DIRECTOR Sh. Sudarshan Kapoor EK-ONKAAR CHIT FUND PVT.LTD. EROS FIN. CHIT FUND PVT. LTD. GIRDHAR CHITS PVT. LTD. GOLDEN BENEFIT CHITS PVT. LTD. J. KRISHNA CHIT FUND PVT. LTD. J. V. CHITS PVT. LTD. KADS CHIT FUND PVT. LTD. KHAJANA CHITSPVT. LTD. LEAN CHITS PVT. LTD. MINCO CHITS PVT. LTD. NIKETAN CHIT FUND PVT. LTD. PARVATI CHIT FUND PVT. LTD. PARVEEN CHIT FUND PVT. LTD. POMA CHIT FUND PVT. LTD. PROSPER CHIT FUND PVT. LTD. RITESH CHIT FUND PVT. LTD. ROHTGI CHIT FUND PVT. LTD. ROYAL CHIT FUND PVT . LTD. RUHANI CHIT FUND PVT. LTD. S. T. S. CHIT FUND PVT.LTD. SAFAL CHIT FUND PVT. LTD. SATSANGI CHIT FUND PVT. LTD. SIMPLICITY CHIT FUND PVT. LTD. SUBHASH NAGAR CHIT FUND PVT. LTD. TRI NAGAR CHIT FUND PVT. LTD. VEDANTA CHIT FUND PVT. LTD. YOG MAYA CHIT FUND PVT. LTD. PARVARISH LEASING FIN. (P) LTD Shop No. 6, Mafare Garden, New Delhi M. V. A. CHIT FUND (P) LTD. Shop No. 10, Krishna Mkt. ,Lajpat Nagar,N. Delhi. HONOUR CHITS (P) LTD. 2352, Sevak Bhawan,IIIrd Floor, Shop No. 9,Beadon Pura,Karol Bagh, N. Delhi. * Source Ministry of corporate AffairsBenefits of Chit funds Chit Fund is an attractive Investment Option which caters to people from all walks of life. It is specifically beneficial to the Salaried Class, Professionals, Businessmen and Self Employed. The uniqueness of Chit Fund as a method of Financial Planning stems from the fact that, it is both a tool for saving and borrowing. In other words, it serves the dual purpose of being an investment for yo ur savings and in times of need the Subscriber can bid for the Prize Amount in order to meet any unexpected expenditure. The benefits of Investing in Chit Fund are numerous. You can choose how much you want to save per month. Chit funds companies offers chits of various denominations and monthly subscriptions amount ranges from Rs 2500/=(Chit value Rs 1 lakh) to monthly subscription of Rs 1,25,000. * The rate of return is very high compared to other Investment Options and it is also secure form of Investment. * Your Monthly payments will be the Chit Subscription Amount minus the Dividend. The details of the Dividend entitled for Deduction and the Balance Amount payable shall be informed every month, which is mandatory. It inculcates the habit of saving and setting apart a particular amount every month towards investment for a rainy day. * It is good for the Housewife to keep or save their small savings in Chit funds as they will get the money at the time of utmost financial need for household purposes. * It is generally used by housewives, employees of same company, peer groups, friends, and family members or some associations. * If it is used in proper or genuine way then it is makes a worth to invest in chit funds (Organized or unorganized). Drawbacks Chit-funds do not offer any pre-determined or fixed returns. * Higher returns are earned when there are more number of members in the group or if the duration of the scheme is longer. * One would earn more, when more members need emergency funds. Thus returns cannot be calculated and decided when one joins the scheme. * No security in unregistered chit fund companies. So there are more chances of getting hoax by these fraud companies. * Organizer gets benefited more from your savings. * No guarantee if fixed returns. * In chits interest earnings are lower than Fixed deposits (FD). High degree of risk is associated with chits, so relying on chit funds for saving could be more dangerous. * Chit does not make mone y it is just a mechanism for liquidity and emergency funds. * Many chit fund owners are collecting huge volume of money from the common people by making false promises to them. Many poor people of our state are being allured by these chit fund owners and depositing their hard-earned money. But the people are not getting back returns for their investments How to be a Safe investor in Chit FundsWith the plethora of chit fund companies around, the safety of a chit fund lies in choosing the right one. In a registered chit fund company, under legal binding, the activities are regulated and institutionalized by the Chit Fund Act. And hence could be considered safe. However, other unregistered companies operating informally do exist. It has been also seen that depositors are being lured by chit funds companies or firms with higher returns than what banks offer them. These companies are also flourishing in the rural belts where banking penetration is low.One should carefully analyze the pro s and cons before making investment in chit funds. Therefore one needs to exercise caution while choosing where he desires to invest. Chit funds definitely are an attractive option for regular saving. It inculcates a disciplined approach to financial planning. It has the added advantage of bringing a combination of savings as well as hassle free borrowing. This dual purpose investment tool could be a friend in need at times of unexpected financial emergencies. Thence BE SAFE AND BE SELECTIVE while going for any chit fund schemes.