Chit funds are a regulated financial entity under the Chit Fund Act, 1982 and then by resident state level local acts. To run a legal chit fund business, one must register the company with the local Registrar of Chits and comply with all the local and central regulations. There are stringent rules that chit companies must adhere to and several rights that every subscriber/investor has.
Chits as an asset class offer a lot to the individual investor as long as you deal only with trusted, transparent, digital, and a completely legal & compliant chit fund.
Chit Funds are a regulated financial entity that are allowed to collect money from individuals and are also classified as a special type of NBFC
The industry is regulated under the Chit Fund Act, 1982 (enacted by Ministry of Finance), a Central Act that is administered by state governments under their local chit fund regulations.
A Registrar of Chits is appointed by the state government as the Regulator of the chit funds. Anyone operating a chit fund must register the chit company with the state Registrar and provide all particulars about the chit company. Even after registration, the Registrar has the authority to refuse the approval of a new chit group/scheme that the chit company wants to start, if they don’t comply with the official requirements. For a Chit Fund company (one that manages, conducts, or supervises chits as defined under Section 2(b) of the Chit Fund Act), it is mandatory to have the word ‘Chit’ in its legally registered name, which is scrutinized by the ROC and regulators before approval is granted.
Apart from the registration, there are several other stringent rules that chit fund companies must follow:
• Minimum Capital requirements as reserve funds. These are used for assuring the safety of every customer’s investment and for clawbacks in case of issues.
• No other usage of retail users’ money collected other than running chits
• Mandated approvals required to start a new chit group – in the form of creation of regulatory Fixed Deposit, prior approvals to start the group, and formal approval by every subscriber in the form of a signed legal chit agreement that must be filed with the regulator
• Chit Prize Money (the money that you borrow from the group) distributed through an auction/lottery process, and the details are reported to the appointed regulator
Rights of a subscriber, investor and borrower
The central chit act and state chits acts have various protections & safeguards for investors who participate in chits
· To get a receipt from the company for the payment of each subscription
· To get a copy of the chit agreement in respect of the concerned chit group before the date of first auction
· Every subscriber is entitled to participate in the auction.
· To receive the chit amount after they win the bid, before the next auction. This is subject to the furnishing of the pre-requisite in accordance with the chit agreement.
· To inspect the chit record and registers at the premises of the chit fund company after payment of requisite fee, as mentioned in the chit agreement.
· To seek arbitration in case of any dispute with the chit fund company regarding the chit in the office of the Registrar.
Chits as an asset class offers a lot to the individual investor as long as you deal only with trusted, transparent, digital, and a completely legal & compliant chit fund company.
KyePot – offering you the best and safest group savings and borrowing Chits
KyePot is India’s only digital chit fund platform that has made all the above possible through our mobile app. In our unique model, we only partner with legal and compliant chit fund companies. We actively verify the entire regulatory process and approvals for both the chit companies and also the regular execution of chits. To ensure the safety of the investors’ money, we have taken a bold, innovative step in the industry and created secured bank accounts as escrows for safeguarding all investments.
KyePot’s mission is to empower the masses to safely invest in this asset class. Now with our mobile app, you can see our partner chit fund company’s verified required legal approvals and documents – including the certificate of incorporation, the regulatory capital FD proof, the registered chit agreements, PSOs, CCs, and more.
We use IndiaStack technology to digitize payments, perform KYC as part of the customer on-boarding, and AML. We use behavior intelligence and machine learning algorithms to manage risks around member selection and defaults. We are also working with our partners and the regulators to become the 1st in India digitize the legal documentation and signatures. The day is not far when KyePot will make chits completely paperless.
Chit groups on KyePot help you achieve your goals faster, provide a cheap source of borrowing, and offer complete transparency of your investments.
Some notable references here below
1. RBI website about NBFCs
2 . The Chit Fund Act, 1982
3 .Some of the more notable state acts governing chits
• Kerala – Kerala Chitties Act 1975
• Tamil Nadu – Tamil Nadu Chit Fund act 1961
• Andhra Pradesh – The Andhra Pradesh Chit Funds Act, 1971
• Karnataka – The Chit Fund (Karnataka) Rules, 1983
• New Delhi – The Chit Fund Act, 1982 & Delhi Chit Fund Rules 2007
• Maharashtra – Maharashtra chit fund 1975
• UP – Uttar Pradesh Chit Funds Act, 1975
• Goa, Daman Diu – the Goa, Daman and Diu Chit Funds Act, 1973
• Puducherry Chit Funds Act, 1966