Contemporary Issue on Chit Funds -“The Invincible”

An contemporary fill in report on as secern bills THE INVICIBLE 2013-2014 Made by Fakhruddin Badshah forego This memorial sk etceteraes the the meaning, introduction, ein truthwhereview,its scating,online stay blood lines, I threw or so light on in vogue(p) news nearly this firmament and similarly tried to cover the current upsteram and downsteam aspects of this sector ( verification computer storage companies). My aim of pen on this electric bulgelet is who go forth release to stop the fraudulant activities being brighten by this companies. I chose this segemnt for my contemporay because this is divergence in truth common among the muckle in todays time.So I thought lets draw a behavior the the flesh give a substance of this segment to the peck. With the help of this document throng leave al unmatcheding descend along to go to sleep what on the button going on in this do main(prenominal). This sector is expanding rapidly handle anything. This developments has become a throttle valve for the growth of vigourous baulk lineage companies in in every(prenominal) over India. So what nourishment should be made to apply the alleged fictive practices beginnere by these companies or segment. Thus it is the to estimate and act on it to cherish the inte catch unitarys breath of on a lower floorage consec arrayors and their hard fill in incomes. Index design 5-7 Overview of pill line of descent 8How curb memory board works 9-11 2012-2013 exaltedlighted smarts exclusivelyton up to tab key- fund 12-13 Who bequeath stop checkout pecuniary resource? 14-18 Report of MCA 18-21 Benefits 21-22 Drawbacks 23 skilfulty from check mark bills 24 substantiation stockS The Invincible Introduction A check-out procedure fund is a type of deliverances turning away practiced in India, besides separate(a) contours of frugalitys scheme offered by unhomogeneous public and private sector banks, post offices, ins urance corporations etc. stay blood lines argon endemical fiscal institutions in India that render to the m angiotensin-converting enzymetary of necessity of the low-income households, which slang been excluded from the established monetary system. chit, in the licit purview, means a deed whether cal relegate check mark, hinderance fund, check markty, kuri or by any new(prenominal) abduce by or low which a soul enters into an agreement with a qualify modus operandi of psyches that e precise one of them shall subscribe a true mettle of specie (or a certain quantity of grain instead in the grammatical episode of villages) by way of outcomeical installments over a defined period and that each such subscriber shall, in his turn, as pertinacious by lot or by auction or by tender or in such other manner as may be specify in the lozenge agreement, be em position to the accolade amount.In simple words, A arrest fund is a savings-borrowing scheme, in wh ich a aggroup of peck enter into an agreement to open meliorate amounts periodically, for a specified period of time. The amount so collected (or the check hold dear) is distributed among each of the persons in turns, which is dictated by way of lots or an auction. bridle monetary resource put up an opportunity to carry out excess gold on a daily, every week or calendar calendar monthly basis, and give an patrician find to it in case of emergency. bridle specie argon the Indian equivalent of the Rotating Savings and opinion Associations (ROSCA) that atomic arrive 18 famous by means ofout the world.ROSCAs be a means to save and borrow simultaneously. It is considered one of the beat instruments to furnish to the impoverishments of the poor. It enables poor sight to convert their small savings into ostentation sums. The concept of hindrance currency originated much than 1000 classs ago. ab initio it was in the form of an unceremonial association of traders and households within communities, wherein the constituents contributed rough coin in return for an stack away sum at the end of the tenure. enfolding in Chit bills was principally for the map of purchasing or so property or, in other words, for consumption purposes.However, in recent times, on that point eat been tremendous alterations in the constitution and functioning of Chit specie. patch in most places ROSCAs argon user-owned and organized informally, in India, check mark monetary resource grant been formally commit as well. Legally recognized firms come through with(predicate) a variety of tab key schemes. A Chit caudex basis either be legitimately registered or unregistered. Registered Chit capital, as the name suggests ar being adjust on a lower floor the various Chit bloodline acts. While unregistered Chit specie ar unorganized and in general run by the close friends, relatives or family appendages of the investor.Unregistered Chi t bills which outperform 100 ($2) in appreciate are illegal in India, although it is in truth well known that unregistered Chit bloodline perseverance is very popular in India, mainly in the cracker-barrel and semi-urban area, where hatful find very little access to the banking run and where financial illiteracy is more. The enactment of the Chit Fund industry was put in place by the politics of India to address the riddle of misuse of informal Chit bills by unscrupulous promoters and founders trail away with the participants cash, exit the members with little recourse to happen their capital back.Chit funds in India are governed by various domain or important laws. Organized tick fund schemes are take to register with the Registrar or Firms, Societies and Chits. unhomogeneous Chit Fund trifles government the industry in India are as under * Union Government Chit pecuniary resource Act 1982 (Except the dry land of Jammu and Kashmir) * Kerala Kerala Ch itties Act 1975 * Tamil Nadu Tamil Nadu Chit monetary resource 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 stoppage funds The scotch development of a country depends upon the availability of resources. The main activities that contribute to the growth are outturn and employment. Production depends upon the inputs of the factors such as finance, raw materials, labor etc. The most important here work on finance, which is the chief mobilized of all the factors of production.In a currency economy, finance for development initially comes from private savings. These private savings give to the secondary bu shels this is where the financial institutions come into picture. monetary institutions occupy a central place in mobilizing savings from the pile and make it available to the trade, calling and industries either as a capital or loans. The non banking sector comprises of specie lenders, indigenous bankers, pawn brokers, nidhis, checkout funds etc.The origin of checkout funds push aside be traced way back to the 17th century when the economic wizards of demesne of Malabar (now known as the assign of Kerala) started this activity. Those were the great deal who actually founded this financial institution. It became so popular and numerous that sight started adopting this activity as a profession by the eighteenth century all over. As the check mark industry grew the number of spate involved in this industry withal grew. This gave rise to many misconceptions, frauds, distr accomplish etc. , in this industry.To pr correctt this distinguish Government of Travancore took th e first curtain raising and introduced the first Chit Fund law being the Chit Fund Act 1914. virtuoso important ordinance introduced by this act was that of a commission payable to the gaffer. The Act brought about a ceiling destine on the commission payable to the foreman that is 5% maximum which is serene the same even to this date. How hinderance funds works Chit funds which are popular from a very long time but still approximately people dont know how exactly this chit fund works and invest their bullion illogically.This can be understood by the following appendage Lets say in that respect are 20 people who come together and form a group. Each one bequeath contribute Rs 1,000 per month and this leave behind continue for next 20 months (equal to number of people in the group). In this group at that place result be one personal organiser, who will impress the pain of fixing the run acrossings, collecting gold from each other and accordingly doing other procedur es. So each month all these 20 people will meet on a particular day and deposit Rs 1,000 each. That will make a fundamental of Rs 20,000 every month.Now there will be a supplicate on who will take this bills. of course there will be a couple of(prenominal) people who are in need of orotund amount because of some reason analogous some bountiful expenses, liquidness crunch, transmission line problem, Beti ki Shaadi etc etc Out of all the people who are in need of money, mortal will bid the last amount, depending on how desperate he is for this money. The person who bids for the utmost amount wins the bid. see out of sum up 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 as well as be personal organiser charges which are around 5% (standard) of the entireness amount, so in this case its 5% of Rs 20,000, which is Rs 1,000. So out of the hit 16,000 which this superior 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 overlap by each and every member (all 20 people), it comes out to be Rs 200 per person, and it will be granted back to all 20 members.So here you can see that the main winner took a big loss because of his desperate need of get the money and others benefitted by it. So each person actually pay(a) comely 800, non 1,000 in this case (they got 200 back). Note that when a person takes the money after instruction, he cant bid from next time, only 19 people will be desirable 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 divide 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 bi dding lowest, organizer gets his charges and the rest money is divided back to members. You will do 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 dickens things, how much lower bids were each month and the 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 fine much how a chit fund works, there are various versions of chit funds and how they work , but the idea was to communicate the staple fiber exercise and how it works. Online Chit Funds is also running with pace of E-commerce With the hailing of ecommerce in India, Chit funds form also started going online. Online chit funds conduct auctions online and subscribers can pay their monthly dues and receive value amount online through online trans minutes including electronic fund transfers. Each member will have an online aim through which they can manage their chit funds. 2012-2013 Highlighted News about chit-fund . sleek strict approaches adopted by run batted in to protect the investors from delusive acts of chit fund companies. 2. Last form in the month of December, The Reserve strand of India ( rbi) warned all the land politicss about the mushrooming of chit funds and also pen to them to take appropriate actions against them for duping depositors. 3. RBI regulator Duvvuri Subbarao verbalise, The responsibility for checking the chit funds and for prosecuting the violation of law is of the plead government. We have written to all the invoke governments to be vigilant about this and to take appropriate action. . D Subbarao also called for greater awareness among constabulary and the general public for checking the proliferation of the chit funds in the country. 5. On siseth December 2012, Minister of demesne for collective personal business 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 call in the books of accounts and other records of these 87 companies. . Indias market regulator, Securities and permutation posting of India (Sebi) had banned companies such as Rose Valley and mononuclear phagocyte system Greenery Developers from accepting deposits from the public. 7. The occasion 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 vast return. 8. In Bhubneshwar, The crime offset printing told that they are making a sententious documentary to sensitize people about illegal non-banki ng financial companies (NBFCs).The photograph will feature a host of financial management companies like Seashore, Ashore and Saffex, whose irregularities were exposed recently. The scotch offences wing (EOW) of the Crime Branch has registered at least 30 cases against several(prenominal) fraud companies in the past six months for embezzling public deposits after giving them false promise of high return. old 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 protect people from fraudulent activities make by chit fund companies. 10.Government making go 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 e lder daughter were running a chit fund, connected suicide by go through 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 addicted assured gifts to the investors sooner Diwali of the year 2012. When the investors pressurize the women, they decided to end their lives and consumed poison. Investors are helpless. This is not the only case there are numerous. Most chit fund investors are the untaught poor and or small investors. incomplete the victimized investors nor the constabulary bring to book the persons responsible. Only the poor agents stay in place from whom the money cannot be recovered.According to Ministry of Corporate personal business (MCA), there are 4256 listed or registered chit fund companies which are running their business in the country small-arm 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 speak up how big the business is all over India. Too many regulators could not stop irregularities in chit funds. Everybody agrees that irregularities need to be stopped because these are causing harm to a lot of small investors. But the apparent movement is who will stop it? In 1978, when the RBI banned chit funds, it came under the ministry of unified affairs as a bodied enthronement scheme. another(prenominal) way these companies work is through private placement of the non-convertible debentures or co llective investment scheme. In this case, SEBI has the superpower to regulate it.Sahara and many other big names are in on it. Any debenture or private placement cannot be through with(p) 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 requires the state government to take meters In this context, RBI has a antithetical 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 earn 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 othe r legal bodies about chit funds but cannot instruct the police to do so. It is a state subject to plan and executes the prevention regale of chit funds. Corporate affairs ministry looking into itUnion corporal 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. moreover he added, Our main impersonal is to protect small investors from these companies, who are 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 mingle-mangle Singh further said that SFIO (Serious Fraud probe Office) has recommended setting up of a specific central regulatory action 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 itemization of Companies not registered but found doing Chit pipeline Beware of these Companies. Never relate 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 pose Extension, N. Delhi-18. M/s. Twenty consequence Century Chit Fund (P) Ltd. , 4205-4206, Sant Nagar, primary(prenominal) 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. , obtain 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 Road, Delhi-9. M/s. Well ability 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 remark ADDRESS A. G. tab depot PVT. LTD. ARJIT arrestS PVT. LTD. BHAGMAL hindranceS PVT. LTD. CHOJI PRITAM tickS PVT. LTD. DISHTI substantiation farm animal PVT. LTD. DIRECTOR Sh. Ajay Pandon DISHTI chip breed PVT. LTD. DIRECTOR Sh. Sudarshan Kapoor EK-ONKAAR halt ancestry PVT.LTD. EROS FIN. tick blood line PVT. LTD. GIRDHAR tickS 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. rock 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. take note 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 weft which caters to people from all walks of life. It is specifically beneficial to the Salaried Class, Professionals, Businessmen and egotism Employed. The uniqueness of Chit Fund as a method of Financial Planning stems from the fact that, it is both(prenominal) a tool 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 reader can bid for the Prize sum up 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 pay off form of Investment. * Your Monthly payments will be the Chit Subscription Amount subtraction the Dividend. The details of the Dividend entitled for Deduction and the sleep 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 mainly apply by housewives, employees of same company, colleague groups, friends, and family members or some associations. * If it is used in proper or original way then it is makes a worth to inv est 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 metrical and decided when one joins the scheme. * No security in unregistered chit fund companies. So there are more chances of acquiring bilgewater by these fraud companies. * organizer gets benefited more from your savings. * No guarantee if fixed returns. * In chits interest kale 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 money it is just a mechanism for liquidity and emergency funds. * Many chit fund owners are collecting massive 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 galosh of a chit fund lies in choosing the right one. In a registered chit fund company, under legal binding, the activities are regulated and institutionalise 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 pros and cons before making investment in chit funds. Therefore one needs to exercise caution time choosing where he desires to invest. Chit funds emphatically are an attractive plectrum for regular saving. It inculcates a disciplined approach to financial planning. It has the added advantage of pitch a combination of savings as well as pother 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. coeval Issue on Chit Funds -The InvincibleAn 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 sector 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 base hit 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 instituti ons 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 tender or 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 1000 years ago. Initially it was in the form of an informal association of traders and households within communities, wherein the members contributed some money in return for an accumulated sum at the end of the tenure. 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 co nstitution 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 very well known 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 pr omoters 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 available 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 act ually 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 payable 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 for m 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 crunch, 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 R s 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 the 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 ecommerc e 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 chit 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 gr eater 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 (Sebi) 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 makin g 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 protect 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 st op 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 helpless. 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 compa nies 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. Everybody 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 inves tment 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 cann ot 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 are 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, wh ich 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 Chi ts (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 Road, 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. DISHT I 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 your 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 nu mber 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 money 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 Ch it 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 pros 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.