Frequently Asked Questions?
Table of Contents
In India, chit fund companies come under the Chit Fund Act, 1982 and hence are legal, registered, and safe. They are different from unregulated deposits and Ponzi schemes. Unregistered chit funds are not legally bound to pay the amount deposited to its members.
Chit funds have a bad reputation because scamsters have misused them in the past. However, registered and government-run chit funds are one of the best investment instruments as they pay good dividends. Many people, especially from small towns, have benefitted from such schemes.
Traditional chit fund companies operate using traditional, complicated manual processes. Customers are required to visit chit fund offices in order to participate in auctions, leading to the loss of valuable time and energy. With digital chits, you can enjoy all the benefits of a traditional chit fund at your convenience. Digital technology has also automated the entire process making chit funds much more transparent, reliable and easy for the millennial customers of today.
Chit fund returns depend on the number of months you participate in and win an auction.
Mutual funds and chit funds serve different purposes. Mutual funds are long-term investments directly linked to market performance. There's no guarantee of you getting your principal amount back or making profits. Chit funds on the other hand, have zero market risk. They are a great tool for guaranteed short-term investments that enable you to save steadily for your goals and emergencies. Also, unlike mutual funds, you can both save and borrow with Chit funds.
The Chit Fund Act, 1982 regulates the chit fund companies in India. Under this law, the chit fund business registration can be done only by its respective state governments. The government appoints the Chit Registrar under section 61 of the Chit Fund Act, 1982.
GST is applied to the services provided by the foreman of the chit fund. The GST on chit fund was fixed by the GST council during the introduction of GST in July 2017 and is at 12% with ITC of input services.
If there are no bidders, a draw is used to declare one of the members as “Successful Bidder” and the prize amount is handed to them. The bid amount will be based on the minimum value fixed.
The registered chit funds are safe as the Chit Fund Act, 1982 regulates them. Under this law, the chit fund business can only be registered by its respective state governments. During the registration, the owner has to pay a security deposit with the registrar of chits, which is 100% of the chit value. The security deposit can only be taken out when the chit fund group closes, and every member is paid what’s due to them. Thus, this regulation protects the money invested by the subscribers. If fraud occurs, the Registrar of chit fund and the concerned State Government can take regulatory action against the chit fund company’s owner. Unregistered chit funds don’t have any legal binding to pay the deposited amount to its subscribers, hence are not safe.
When you decide to invest in a chit fund company, check the chit fund companies’ list in the chit registrar of the respective state. If the chit company’s name is mentioned in the list, you can invest your money in the company. If the name doesn’t appear in the list of approved chit companies, don’t invest your hard-earned money.
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