Why Chit Funds? 5 Times better than FD’s Best and most trusted investment plan to meet your short term needs. In simple terms, it could be said as interest free advance* which needs to be paid back as monthly installments, depending on monthly auctions. Effective financial planning helps you to mitigate from huge interests levied on personal loans, short term loans etc if borrowed. When the capital outflow is large, chits offer flexibility of breaking this large requirement into fragments. Membership of a small chit may be taken after convenient time gaps so that installment outflows are easily managed. Ease of excessive paper work as compare to loans. Chit Funds are designed to meet the customer requirements can be dynamic per client needs. Ease from money lock in period for any specified period. To ensure safety of investments the company has insured the investor’s money History: A collection of members called a chit group makes their contribution in the form of money to collect a chit amount and they bid in an auction to be awarded with the prized money which is equal to the chit amount minus the discount and the foreman’s commission. with the Deputy Registrar of Chits and a registered number is obtained. The Foreman promotes and conducts the Chits as per the regulations of the Chit Fund Act and Rules. How it works: Example Different chit funds operate in different ways; and there are also many fraudulent tactics practiced by many private firms. The basic necessity of conducting a ‘Chitty’ is a group of needy people called subscribers. The foreman – the company or person conducting the chitty – brings these people together and conducts the chitty. The foreman is also the person responsible for collecting the money from subscribers, presiding over the auctions and keeping records of subscribers. He is compensated a fixed amount (generally 5% of gross chitty amount) monthly for his efforts; other than that the foreman does not have any specific privileges, he is just a subscriber of the chitty. The general pattern of the chitty can be readily noticed by a simple formula: Monthly Premium × Duration in Months = Gross Amount E.g.: 1000 * 50 = 50,000/- Where 1000 is the maximum monthly contribution needed from a subscriber, 50 is the duration of the chitty in months and 50,000 is the maximum sum assured. The duration also equals the number of subscribers, as there must be (not more or less) one subscriber to receive the price money every month. The chitty starts on an announced date, every subscriber come together for the auction/lot. As per Kerala chit act, the minimum prize money of an auction is limited to 70% of the gross sum assured that is 35,000 in the above example. When there are more than one person willing to take this minimum sum, lot are conducted and the ‘Lucky subscriber’ get the prize money for the month. If there is no person willing to take the minimum sum, then a reverse auction is conducted where subscribers open-bid for lower amounts; that is from 50,000 >> 49,000 >> 48,000, and so on. The person bidding lowest sum get bid amount. In both the cases the auction discount, that is the difference between the gross sum and auction amount, is equally distributed among subscribers or is deducted from their monthly premium. For example if the auction is settled on a sum of 40,000, then the auction discount of 10,000 (50,000 – 40,000) is divided by 50 (the total number of subscribers) and every one gets a discount of 200. The same practice is repeated every month and every subscriber gets a chance of receiving some money.

The Chits Funds Act,1982 Be it enacted by Parliament in the Thirty-third Year of the Republic of India as follows: STATEMENT OF OBJECTS AND REASONS 1-A „conventional chit‟ is an old indigenous financial institution involving regular periodical subscriptions by a group of persons. It is, in law, a contract between the subscribers and the foreman which provides that the subscribers shall subscribe a certain sum by periodical installments for a definite period. Each subscriber shall, in his turn, as determined by lot or by auction or in such other agreed manner be entitled to the prize amount. There will be as many periodical installments as there are members. As there is a mutuality of interest among the small number of subscriber to each chit fund, it constitutes a convenient instrument combining savings and borrowings. 2- In the wider context of examining in depth the activities of the non-banking financial intermediaries (which term also includes institutions conducting chit fund or kuries) , the Banking Commission (1972) had recommended inter alia , that it is essential to have a uniform chit fund legislation applicable to the whole country and as such either an all India Chit Funds Act may be enacted or a model law may be prepared for adoption by all the states. The Commission also observed that it would be desirable to provide in the legislation that only public limited companies can run chit funds. 3- The recommendations of the Banking Commission were examined by Government. The Reserve Bank, at the instance of the Government, drafted a model Bill to regulate the conduct of chit funds for adoption by all the State Governments. The Reserve Bank also sent the draft Bill to the Study Group on non-Banking companies constituted by it in June, 1974 under the Chairmanship of late Shri James S. Raj, the then Chairman of the Unit Trust of India. The Study Group was unanimously of the view that the Bill should be enacted as a Central legislation, as such a step. Besides ensuring uniformity in the provisions applicable to chit fund institutions throughout the country, would also prevent such institutions from taking advantage either of the absence of any law governing chit funds in any State or exploit the benefit of any lacuna or relaxation in any State Government concerned which in turn could seek the advice and assistance of the Reserve Bank on policy matters. Further, there should be according to the Group no objection to chits being conducted by private limited companies also and on a limited scale even by unincorporated bodies, such as, individuals, sole proprietorships and partnership firms. 4- The Bill has been finalized after taking into account the views of all the State Governments to whom a Draft Bill was sent for comments. The scheme of the Bill and the provisions made therein largely follow the pattern of chit fund legislations in force in some of the States and includes certain new provisions, such as, minimum capital requirements for companies conducting chit business, prohibiting chit fund companies from doing any other business, placing a ceiling on the aggregate chit amounts of chits that are being conducted by (2)Chit fund institutions, providing for a self-contained machinery for the settlement of disputes between a foreman and the subscribers by means of arbitration, etc. The repeal of the existing State legislations on the subject has also been provided for in the Bill. 5.The “Notes on Clauses” appended to the Bill explain in detail the provisions of the Bill. Comments Objects and reasons of the Act.-The objects and reasons of the Act are to be taken into consideration in interpreting the provisions of the statute and not the debates in Parliament on the Bill. The law is well settled that it is permissible to look into the circumstances which prevailed at the time when the law was passed and which necessitated the passing of that law to determine the purpose or object of the legislation. Penal Statute-Interpretation of – In order to interpret sections of the Indian Penal Code or any other penal statute the principal applicable is that the Penal Statute must be strictly construed in favour of the subject. The maxim “contemporanea expositio”- Application of.– The maxim “contemporaneous ecpositio” as laid down by Coke is applied in construing ancient statutes but not to interpreting Acts which are comparatively modern.Further, it has been observed that in a modern progressive society it would be unreasonable to confine the intention of a Legislature to the meaning attributable to the word used at the time the law was made and, unless a contrary intention appears, an interpretation should be given to the words used to take in new facts and situations, if the words are capable of comprehending them. CHAPTER – 1 Preliminary 1- Short title and commencement.-(1) This Act may be called the Chit Funds Act, 1982. 2- It extends to the whole of the India except the State of Jammu and Kashmir. 3- It shall come into force on such date as the Central Government may, by notification in the official Gazette, appoint and different dates may be appointed for different States. Constitutional validity of the Act.The Chit Funds Act, 1982, is within the leigislative competence of the Parliament. It was declared that Secs.4 (3), 6(3), 7,8,12,16,(2), 17(1), 19,20,21,70,76,77 and 84 of the Act challenged through writ-petitions are constitutionally valid and are not violative of Arts. 14 and 19 (1) (g) of the Constitution. 2- Definitions – In this Act, unless the context otherwise requires,- (a) “ approved bank” means the State Bank of India constituted under Sec.3 of the State Bank of India Act, 1955 (23 of 1955), or a subsidiary bank constituted under Sec. 3 of the State Bank of India (Subsidiary Banks) Act, 1959.(38of 1959), or a corresponding new bank constituted under Sec.3of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 ( 5 of 1970), or a Regional Rural Bank established under Sec. 3 of the Regional Rural Banks Acts, 1976 […]