What is the concept of chit fund?
A chit fund is a rotating saving scheme that has been a part of India’s financial system for more than a century now. It is also known as chit, chitty or kuree. As a savings instrument, it gives a good return on investment, and as a borrowing scheme, it can be a reliable source of funds in emergencies and otherwise.
What is a chit fund and how does it work?
A chit fund is both a savings and credit product. It bears a pre-determined value and is of a fixed duration, mostly two to three years. Each scheme admits a specific number of members whose monthly contributions adds up to the total value of the chit fund at the end of the term.
How many types of Chits are there?
Registered Chit Funds: Registered chit funds are those funds which are registered with the state government under the Chit Funds Act,1982. There are over 10,000 registered chit funds in India. Unregistered Chit Funds: Unregistered funds are those which are not registered with any state government.
What is a chit system?
the chit systemâ?? is simply a scheme to let people have some document to show that they have attended a particular meeting. That person can then give the confirmation to offender managers, Social Services, an employer or any other body.
Who regulate chit funds?
Registrar of Chits
According to the Chit Funds Act, 1982, the chit funds are registered and regulated only by the respective state governments. The latter appoint the Registrar of Chits, under Section 61 of the Chit Funds Act.
How do chit funds make money?
A savings-cum-loan scheme in which a number of contributors come together to invest a fixed sum every month. The money is collected from the chit group and is put up for auction every month. The investor who bids the lowest for the total sum will win the lot.
What is dividend in chits?
Every month, an auction is conducted wherein the members bid for the chit amount. The amount foregone by the winning bidder is distributed among all the members equally after deducting foreman’s commission and other charges. The amount distributed to each member is called dividend.
Is chit fund regulated by RBI?
Chit funds in India are not regulated by the Reserve Bank of India (RBI), nor the Securities and Exchange Board of India (SEBI). According to the Chit Funds Act, 1982, the chit funds are registered and regulated only by the respective state governments.
Is chit fund a financial institution?
Definition: The Chit Fund Company is a financial institution engaged in the principal business of managing, conducting and supervising the chit scheme.
Is it good to invest in chit funds?
Chit funds are not necessarily a bad investment. It has a bad reputation because it has been misused in the past to scam naive investors. There are Government-run and registered chit funds that are safe to invest in. On the other hand, recurring deposit are a much safer investment.
Which is the best description of a chit fund?
Chit fund. A chit fund is a type of rotating savings and credit association system practiced in India. Chit fund schemes may be organized by financial institutions, or informally among friends, relatives, or neighbors.
When do Chit Funds hold a chit auction?
The chit fund company holds a chit auction after receiving the members’ contributions at this stage. When there is only one participant who wishes to join in the auction, he or she is free to do so. 4. Member of the Month
Do you have to report income from chit funds?
The common consensus is that interest from chit funds is not taxable. If the member chooses to report the money collected from the chit fund in question as a loss, all dividends obtained from chit funds must be reported as revenue gain in the person’s tax filings.
What was the purpose of chit fund in Kerala?
Its explicit purpose was to provide an alternative to unscrupulous private-sector chit fund organizers. In 2000, it had 77% of the capital volume of the chit fund business in Kerala, though just 37.5% of the number of chit funds. By 2012, it has grown to serve 2.5 million customers with Rs 14,646 crore in annual business.