A chit fund is a very popular type of savings scheme in India – It is one of the main parts of the unorganized money market industry. The chit fund company, which runs a chit fund, provides access to savings and borrowings for people with limited access to banking facilities. A Chit Fund Company is another type of finance company in India which does not require Reserve bank of India (RBI)’s approval. Chit Fund Companies are governed by Chit Fund Act 1982 and RBI has specifically exempted from its core provisions.
To start a chit, a chit fund company usually advertises a chit fund scheme and enrolls interested members. All chit fund schemes have a period, contribution and a set of members. The number of members in the chit will equal to the period, and each of the members will be required to contribute a fixed amount for each period.
A Chit Fund Company is a legal entity and a juristic person. It has wide legal capacity and can own property.
Foremen are the person who manages all the chit fund activities and against which he charges a monthly commission which is around 5% of the total chit value.
The system caters to financial needs by combining processes of credit and saving in one scheme.
After incorporating a private limited company, we have to obtain registration under the Chit Fund Act, 1982 from the Chit Fund Registrar of the State.
Though the chit fund companies are a category of NBFC, the chit funds are exempt from being registered with the Reserve Bank of India.
A Chit Fund Company pays tax free dividends to its subscribers.
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