Chit Funds

Section 2(b) of the chit Fund Act, 1982

• "Chit means a transaction whether called chit, chit fund, chitty, kuree 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 by way of periodical instalments 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".
1 Bids
1000
19,000

17,000

2 1000
Organiser
20,000 Lowest Bid 15,000
Charges
16,000
1000

3 1000
20,000 – 16,000 = 4000

4000/20 = 200

Rs.200 goes back to each member

Benefits of Chit Funds
• Borrowing cum savings instrument
• Rate of borrowing is determined by the participants
• Intermediation cost is the lower when compared to other instruments
• Social Collateral
Top Chit Funds in India

• Mysore Sales International

• Government of Kerala backed Chitty
• Shriram Chits
Saradha Chit Fund Scam
How to prevent Chit Funds Scams
• Check for the credibility and creditworthiness of the company and its
promoters.
• Warn people about fraudulent companies & Report them
• Opt for state-run chit companies and go with firms with a long record
and financially sound promoters.
• Invest in a scheme with no incentives for subscribers to bring in more
people to the scheme.
• Implementation of easy-to-use web-based Chit Fund Management
system (CFMS).