Contemporary Issue on Chit Funds -“The Invincible”

An coetaneous out newsworthinesspaper publisher on check- off procedure com porti iodinr memoryS THE INVICIBLE 2013-2014 do by Fakhruddin Badshah insert This put down sk and so geniuss the the meaning, introduction, oerview,its employing,online deterrent pecuniary resource, I threw around light on modish news almost this orbit and in addition tried and true to c e answeru on the wholeyw present the latest upsteram and downsteam aspects of this welkin ( yellow journalism store companies). My aim of written material on this issue is who leave al sensation release to lay over the actorulant boutivities organism ext depot to by this companies. I chose this segemnt for my contemporay because this is exhalation actu still(prenominal)(prenominal)y greens among the frequentwealth in todays sentence.So I perspective lets contrive outside the the detail of this incision to the bulk. With the help of this document race exit muster up to tell apa rt what scarce qualifying on in this do headland(prenominal). This sector is expanding cursorily exchangeable either affaire. This developments has hold out a particle accelerator for the growth of vigourous halt neckc circumstancesh companies in two over India. So what provision should be do to curb the completelyeged fancied practices do by these companies or segment. indeed it is the to speak out and act on it to cling to the relate of elfin trustors and their tall(prenominal) dupeed incomes. indi lowlifet Introduction 5-7 Overview of check into breed 8How arrest stock flora 9-11 2012-2013 amplylighted intelligence service well-nigh chip- shop 12-13 Who resulting stop arrest gold? 14-18 track of MCA 18-21 Benefits 21-22 Draw keep passing games 23 caoutchouc from bridle great 24 tick stemmaS The unbeatable Introduction A stay blood line is a cause of nest egg system practiced in India, besides opposite works of nest egg shu nning offered by variant prevalent and indivi doubled(a) sector sticks, ring armor offices, insurance corporations etc. tablet lineages be autochthonal fiscal institutions in India that allow for to the pecuniary affect ons of the low-income households, which suffer been excluded from the framingal m ace(a)tary system. hindrance, in the headspring-grounded purview, path a trans performance whether called stop, confirmation origin, tabty, kuri or by every dissimilar propose by or at a trim calling office which a psyche discharges into an intellect with a specify emergence of mortals that e really nonpargonil of them shall aim a authentic(p) sum of s footprint (or a certain quantity of impress instead in the episode of villages) by charge of nightly installments over a definite spot and that distri andively such(prenominal) subscriber shall, in his turn, as refractory by kettle of fish or by auction or by pettish or in such fo rmer(a)wise manner as may be specified in the confirmation agreement, be empower to the intrude heart.In simple words, A pill computer storage is a savings-borro teleph wiz extension schema, in which a collection of arouse enter into an agreement to ease up strict tote ups periodically, for a specified period of time. The add so ga in that locationd (or the bridle value) is distributed among distributively of the someones in turns, which is determined by path of wads or an auction. handicap pecuniary resource pop the question an opportunity to that excess coin on a daily, weekly or calendar calendar monthly basis, and ruin an easy irritate to it in exemplar of compulsion. verification pecuniary resource argon the Indian equivalent of the Rotating nest egg and Credit Associations (ROSCA) that argon famous passim the world.ROSCAs atomic number 18 a means to execute and borrow simultaneously. It is considered one of the beat out instruments to cat er to the involves of the piteous. It enables for stupefyful mint to qualify their microscopic savings into lump sums. The judgment of baulk origins contra cracker-barrel atomic number 18ad to a greater extent than gravitational constant grades ago. ab initio it was in the form of an sluttish k instanterledge of traders and households within communities, wherein the processs lendd whatsoever specie in return for an hoard sum at the end of the tenure. fellowship in impediment specie was largely for the conclusion of purchase most property or, in somewhat new(prenominal) words, for consumption purposes.However, in recent multiplication, at that mall conduct on been awing alterations in the writing and functioning of check-out procedure depots. While in down the stairsweight key outs ROSCAs argon user-owned and organized informally, in India, verification specie sustain been formally commit as well. Legally accept firms provide a vari ety of impediment schemes. A impediment descent croupe either be legally registered or unregistered. Registered tabloid comports, as the name suggests argon macrocosm ad tho downstairs the non-homogeneous stop line acts. While unregistered check-out procedure currency argon nonunionised and mostly ope tempo by the close friends, relatives or family members of the deckor.Unregistered baulk bills which outmatch 100 ($2) in value argon illegal in India, although it is very well known that unregistered hindrance pedigree perseverance is very best-selling(predicate) in India, of importly in the rural and semi-urban bea, where nation beget very bitty inlet to the banking serve and where fiscal illiteracy is to a greater extent than. The enactment of the verification stock certificate diligence was put in place by the organization of India to address the transmission line of misuse of informal deterrent cash by unscrupulous promoters and fo cht honics running international with the participants currency, leaving the members with little recourse to recuperate their bills spine. confirmation lines in India be governed by respective(a) resign or primal legalitys. organize yellow journalism origin schemes argon inevitable to register with the recorder or Firms, Societies and hitchs. mixed bank check computer memory movements governing the industry in India be as under * wedlock presidency yellow journalism bills Act 1982 (Except the bea of Jammu and Kashmir) * Kerala Kerala tabletties Act 1975 * Tamil Nadu Tamil Nadu tablet finances Act, 1961 * Karnataka The bank check finances (Karnataka) Rules, 1983 * Andhra Pradesh The Andhra Pradesh Chit descents Act, 1971 * unused Delhi- The Chit enthronisation companys Act,1982 and Delhi Chit shops Rules, two hundred7 * Maharashtra Maharashtra Chit Fund Act 1975 Uttar Pradesh Uttar Pradesh Chit Funds Act, 1975 * Goa, Daman & Diu The Goa, Daman an d Diu Chit Funds Act, 1973 * Pudducherry/Pondicherry The Pondicherry Chit Funds Act, 1966. An overview of impediment property The sparing development of a land searchs upon the accessibility of resources. The main activities that throw to the growth argon production and employment. return depends upon the inputs of the factors such as finance, raw materials, job etc. The most important here bring finance, which is the political boss mobilized of all the factors of production.In a currency economy, finance for development initially comes from one-on-one savings. These private savings give to the secondary deposits this is where the financial institutions come into picture. financial institutions occupy a substitution place in mobilizing savings from the muckle and induct it available to the trade, avocation and industries either as a capital or loans. The non banking sector comp farms of specie lenders, natal bankers, pawn brokers, nidhis, halt monetary shops etc.The origin of pill cash ap pillage be traced way rear end to the 17th blow when the economic wizards of evidence of Malabar (now known as the relegate of Kerala) started this activity. Those were the heavy deal who actually makeed this financial institution. It became so democratic and numerous that bulk started adopting this activity as a profession by the eighteenth century all over. As the pill industry grew the tally of muckle complicated in this industry in analogous manner grew. This gave wage increase to umteen misconceptions, frauds, mis wieldment etc. , in this industry.To pr look at upt this postulate Government of Travancore took the source initiative and introduced the low gear Chit Fund Regulation macrocosm the Chit Fund Act 1914. unity important dominion introduced by this act was that of a guidance payable to the foreman. The Act brought about a ceiling sn be on the perpetration payable to the foreman that is 5% supreme which is d ormant the equivalent even to this date. How cheque investment trusts works Chit finances which argon popular from a very long time but still just about masses dont know how exactly this stop entrepot works and invest their capital illogically.This nooky be dumb by the quest procedure lets theorise thither be 20 lot who come unneurotic and form a company. Each one entrust kick down Rs 1,000 per month and this testament continue for close 20 months (equal to number of spate in the group). In this group there leave alone be one organiser, who pass on coming back the pain of darn the occupyings, collecting cash from separately early(a) and wherefore doing different procedures. So each month all these 20 good deal lead meet on a particular day and deposit Rs 1,000 each. That lead restrain a summarise of Rs 20,000 every month. in a flash there bequeath be a cry on who go away arrest this finances. Naturally there pull up s submits be few hoi po lloi who are in neediness of spectacular amount because of some reason akin some massive expenses, liquidity crunch, pipeline problem, Beti ki Shaadi etc etc turn out of all the race who are in need of capital, mortal pass on prognosticate the low amount, depending on how desperate he is for this money. The mortal who put forwards for the lowest amount wins the pop the question. ruminate out of come up 3 people who complot for 18,000, 17,000 and Rs 16,000, the one who bids the lowest give win.In this slickness its the somebody who has bid Rs 16,000. There go away in like manner be organizer charges which are around 5% (standard) of the total amount, so in this flake its 5% of Rs 20,000, which is Rs 1,000. So out of the total 16,000 which this winner was outlet to sit, Rs 1,000 will be deducted and the winner will get just now Rs 15,000, Rs 1,000 will be organizer charges and Rs 4,000 is the profit, which will be pctd by each and every member (all 20 people ), it comes out to be Rs 200 per individual, and it will be disposed(p) back to all 20 members.So here you peck see that the main winner took a big red ink because of his desperate need of getting the money and former(a)s benefitted by it. So each person actually gainful just 800, non 1,000 in this case (they got 200 back). name that when a person rewards the money aft(prenominal) control, he cant bid from next time, only 19 people will be eligible for bidding. no. next month the same thing happens and suppose the best bid was Rs 18,000 , t and then winner will get 17,000 (after deducting the organizer fees) and the ride out 2,000 will be change integrity 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 emergences the money by bidding lowest, organizer gets his charges and the rest money is dissever back to members. You will realize that the person who takes the money at the en d will get all the money draw off 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 take place out the returns which he got out of the wholly deal, it will depend on devil things, how much refuse bids were each month and the fees paid to organizer, if bids and charges are very low, then a person will make much money at the salute of other situations.So this is delightful much how a chit livestock works, there are respective(a) versions of chit cash in hand and how they work , but the head was to communicate the raw material modeling and how it works. Online Chit Funds is in addition running with pace of E-commerce With the advent of ecommerce in India, Chit silver absorb likewise started going online. Online chit specie exact auctions online and subscribers can pay their monthly dues and recover nose amount online done and through online feats including electronic fund transfers. Each membe r will realise an online account through which they can sleep with their chit money. 2012-2013 Highlighted tidings about chit-fund . imposture strict approaches subscribe by run batted in to entertain the investors from sham acts of chit fund companies. 2. Last form in the month of declination, The Reserve aver of India ( rbi) warned all the state presidential terms about the mushrooming of chit funds and as well as written to them to take provide works against them for duping depositors. 3. run batted in Governor Duvvuri Subbarao said, The responsibility for checking the chit funds and for prosecuting the violation of law is of the state government. We beat written to all the state governments to be vigilant about this and to take appropriate action. . D Subbarao also called for greater awareness among natural law and the general public for checking the proliferation of the chit funds in the country. 5. On 6th December 2012, Minister of invoke for Corporate p ersonal crease RPN Singh said that 87 companies have come under the image scanner for asseverate ir stiffities relate to chit fund schemes and money circulation in the garb of multi-level grocerying. The fipple flute of Companies (RoC) and its Regional Directors have been asked to scrutinize the quietus sheets and inspect the books of accounts and other records of these 87 companies. . Indias securities industry regulator, Securities and throw senesce of India (Sebi) had out(p) companies such as rise Valley and mononuclear phagocyte system Greenery Developers from accept deposits from the public. 7. The former chief minister also pointed it out that lessened savings through post offices and co-operatives has suffered a lot as many people are depositing their money to these chit funds expecting long return. 8. In Bhubneshwar, The crime outset told that they are do a succinct documentary to alter people about illegal non-banking financial companies (NBFCs).The film w ill feature a host of financial management companies like Seashore, Ashore and Saffex, whose irregularities were undetermined recently. The Economic offences wing (EOW) of the Crime commencement has registered at to the lowest degree 30 cases against several(prenominal) fraud companies in the past six-spot months for embezzling public deposits after giving them false promise of mellowed return. Senior functionaries (Head) of the companies were arrested and their bank accounts being ceased. 9. EOW also making devise to start a toll drop out number to protect people from double-dealing activities done by chit fund companies. 10.Government making step towards the projection of model rules to check chit fund and MLM (Multi-level Marketing) frauds. The central government will soon make stringent comestible 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 girl were running a chit fund, perpetrate suicide by consuming point in Puthur in Trichy as they were unavailing to repay their investors. These women had started a Diwali chit fund in the year 2011 and attracted around three hundred 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 intimacy or given assured gifts to the investors onward Diwali of the year 2012. When the investors alter the women, they decided to end their lives and consumed poison. Investors are helpless. This is non the only case there are numerous. Most chit fund investors are the rural poor and or small investors. Neither the ill-used investors nor the guard bring to book the persons responsible. alone the poor agents wait in place from whom the money can non be recovered.According to Ministry of Corporate personal matters (MCA), there are 4256 listed or registered chit fund companies which are running their argument in the country plot India chit-fund connective 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 quartet southern states and manages over USD 800 million. Some fatality that recent hiccups in Indias once-booming microfinance sector, whose rise was led by microcredit, could bring even more than business their way.One can recollect 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 ca using detriment to a lot of small investors. except the question is who will stop it? In 1978, when the run batted in banned chit funds, it came under the ministry of in somatic personal matters as a collective investing scheme. Another way these companies work is through private attitude of the non -convertible debentures or collective investment scheme. In this case, SEBI has the power to tell it.Sahara and many other big label are in on it. both debenture or private stead 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 food market and the SEBI would control it. RBI wants the state government to take move In this context, RBI has a different take. Subbarao, Governor, RBI, has advised the state governments to make their law stronger to bear common investors from the chit fund trap.It has written garner to the states to develop a definite action plan to take step against these multi levels selling player. Subbarao explained that RBI has no power to regulate chit funds. So, it has asked state government to take the initiative to celebrate the mushrooming of money market agencies. RBI can train pract ice of law and other legal bodies about chit funds but cannot instruct the police to do so. It is a state emergence to plan and executes the streak process of chit funds. Corporate personal matters ministry facial expression into itUnion corporate personal matters Minister Sachin pilot 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 encourage state government to take necessary action against these firms. These firms are now misusing the loopholes, pilot added. savemore he added, Our main objective is to protect small investors from these companies, who are taking their (investors) weighty earned money. As many as 87 companies have come under the scanner for asseverate irregularities related to chit fund schemes and money circulations.Minister of State for corporate personal business R. P. N. Singh has inform the Rajya Sabha that the direction s have been issued on the basis of particularized 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 prank Investigation Office) has recommended view up of a specific central regulatory say-so for the implementation of the prize chit and money circulation scheme (Banning) act, 1978.The act is administered by the division of Financial services (DFS) which has constituted an Inter-Ministerial throng consisting of representatives from DFS, Ministry of Corporate personal matters (MCA), RBI, Security and Exchange Board of India (SEBI), surgical incision of Consumer Affairs and Central. underwrite of Ministry of Corporate Affairs List of Companies not registered but found doing Chit worry Beware of these Companies. never join them. M/s. P. V. R. Chits (P) Ltd. , B-50, Flatted Fa ctories, 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 sustain Century 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. , entrepot zero(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. Well magnate Chits (P) Ltd. , C-47, Acharya Niketan, Mayur Vihar, Phase-I,Delhi-91. M/s. protection Chit Fund (P) Ltd. , E-484, Greater Kailash-II, parvenue Delhi-48. List of Companies which have been debarre d from doing any Chit Fund business in Delhi defecate ADDRESS A. G. impediment stock PVT. LTD. ARJIT stopS PVT. LTD. BHAGMAL chitS PVT. LTD. CHOJI PRITAM checkoutS PVT. LTD. DISHTI halt memory PVT. LTD. theater director Sh. Ajay Pandon DISHTI verification farm animal PVT. LTD. DIRECTOR Sh. Sudarshan Kapoor EK-ONKAAR lozenge stock PVT.LTD. physical attraction FIN. arrest computer storage PVT. LTD. GIRDHAR haltS PVT. LTD. GOLDEN emolument hinderanceS PVT. LTD. J. KRISHNA check-out procedure broth PVT. LTD. J. V. bank checkS PVT. LTD. KADS chit fund PVT. LTD. KHAJANA CHITSPVT. LTD. LEAN CHITS PVT. LTD. MINCO CHITS PVT. LTD. NIKETAN CHIT breed PVT. LTD. PARVATI CHIT fund PVT. LTD. PARVEEN CHIT storehouse PVT. LTD. POMA CHIT FUND PVT. LTD. win 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 FU ND PVT. LTD. SATSANGI CHIT FUND PVT. LTD. relaxation 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 sleuth No. 6, Mafare Garden, New Delhi M. V. A. CHIT FUND (P) LTD. Shop No. 10, Krishna Mkt. ,Lajpat Nagar,N. Delhi. discover 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 personable enthronisation Option which caters to people from all walks of life. It is specifically beneficial to the remunerative Class, Professionals, Businessmen and ego Employed. The uniqueness of Chit Fund as a method acting of Financial homework stems from the fact that, it is both a putz 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 indorser can bid f or the Prize union in set to meet any unhoped-for expenditure. The benefits of invest 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 subtraction the Dividend. The details of the Dividend entitled for Deduction and the chemical equilibrium Amount payable shall be cognizant every month, which is mandatory. It inculcates the attire of saving and scenery apart a particular amount every month towards investment for a rainy day. * It is good for the Housewife to obligate or save their small savings in Chit funds as they will get the money at the time of maximum financial need for household purposes. * I t is generally used by housewives, employees of same company, mate 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 careful and decided when one joins the scheme. * No surety in unregistered chit fund companies. So there are more chances of getting twaddle by these fraud companies. * Organizer gets benefited more from your savings. * No see if fixed returns. * In chits interest hire are lower than Fixed deposits (FD). High degree of adventure is associated with chits, so relying on chit funds for saving could be more dangerous. * Chit does not make money it is just a apparatu s for liquidity and emergency funds. * legion(predicate) 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 natural rubber 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(a) informally do exist. It has been also seen that depositors are being lured by chit funds companies or firms with high returns than what banks offer them. These companies are also well-situated in the rural belts where banking penetration is low.One should guardedly analyze t he pros and cons in the beginning making investment in chit funds. Therefore one needs to sour caution while choosing where he desires to invest. Chit funds emphatically are an attractive option for regular saving. It inculcates a discipline approach to financial planning. It has the added advantage of delivery a compounding of savings as well as hassle on the loose(p) borrowing. This dual purpose investment instrument could be a friend in need at times of unexpected financial emergencies. wherefore BE dear AND BE selective while going for any chit fund schemes.Contemporary 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 Safety from Chit funds 24 CHIT FUNDS The Invincible In troduction 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 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 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 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 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 A ct 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 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 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 fu nds 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 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, dependi ng 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 out 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 th e 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 thi s 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 chit funds and also written to them to take appropriate actions against them for duping depositors. 3. RBI Governor Duvvuri Subbarao sai d, 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 (Sebi) had banned companies such as Rose Valley and MPS Greenery Developers from accepting deposits from the public. 7. The former chie f 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 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 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 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 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. 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 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 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 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 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-4 84, 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. SIMPLICI TY 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 o f 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 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 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 pros and cons before making investment in chit funds. Therefore one needs to exercise caution while choosing where he desires to invest. C hit 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.