Chit fund company

A Chit Fund is a type of saving and borrowing that can be made among friends, relatives, neighbours, and others. It is usually done for a specified period and a specified value. It includes a particular number of members who contribute some fixed amount each month which adds up as the total value of the ChitFund. A company that runs, manages, supervises and conducts a ChitFund scheme is known as Chit Fund Company. The individuals who are involved in this Chit Fund scheme are known as members. This type of company offers various schemes to its members for a limited duration and fixed amount.

“Chit” means a transaction whether called chit, chit fund, kuri or by any other name or under which a person enters into an agreement with the specified number of persons that everyone of them shall subscribe a certain sum of money by way of periodical installments.

A Chit Fund Company needs to get recognized under the Chit Fund Act, 1982. Its main functions include offering Chit Fund schemes, finding the relevant and reliable members, collecting the subscription amount, conducting auctions, distributing funds and managing the records. The companies earn a fixed percentage amount of the total value of the scheme for managing the scheme.


There are some key features of a Chit Fund Company. These are:

A Chit Fund Company is a category of Non-Banking Financial Company (NBFC)

Operates Chit Fund Schemes and regulated under section 61 of the Chit Fund Act, 1982

Exempted from being registered with Reserve Bank of India

Involves organizing a chit fund Scheme, searching potential members, enrolling them, collecting monthly subscriptions, monthly auctions, distributing funds and maintaining records

Earns a fixed amount as members’ contribution for organizing the scheme

Advertises a chit fund scheme to invite members

Number of members is always equal to the number of months

Each member contributes an equal amount every month


To understand the working of a Chit Fund Enterprise, let’s take an example. Assume a person “X” joins a Chit Fund worth Rs 1, 00,000 with the monthly To understand the working of a Chit Fund Enterprise, let’s take an example. Assume a person “X” joins a Chit Fund worth Rs 1, 00,000 with the monthly contribution amount Rs 5000. The scheme has 20 members who contribute their savings each month. At the end of each month, any member can bid the auction worth Rs 100000. The member who bids the highest wins the auction and gets the auction amount but it is not allowed to offer discount more than 40 % of the total amount. The amount deducted from the bidder’s payout will be distributed among the members as their profit. Also, a fixed percentage of commission is deducted from the bidder’s amount as the earning of the Chit Fund Company.

In this instance, Rs 5,000 x 20 = Rs 1, 00, 000 is called as chit value. The auction takes place on a fixed date each month and all the members must come together at the auction.


People usually consider chit funds companies as illegal but in reality, it is not so. These companies are completely regulated by the government though these are not required to register with RBI. However, to commence a Chit Fund Company, it is compulsory to register it with the registrar of the state. Here are some documents which are mandatory to submit with the registrar while applying for the license:

PAN card details of the directors and members

ID proof of the directors and members (Aadhar card, voter ID card, driving license, passport)

Address proof of directors and members

Passport size photograph of director and members

Latest electricity bill of the registered office

Rental agreement of registered office (if rented)

A NOC from the landlord (if rented)

Sale deed (if the property is owned)


Certain restrictions are implemented by Reserve Bank of India on the Chit Funds business. These include:

Only registered companies can organize a Chit Fund business. No other partnership firm, family members, friends or unregistered company can run a chit fund business.

Each Chit Fund Company must register themselves with the Registrar of Chit Companies by providing every information in detail

An auction can take place at a maximum discount of 30 % but this has changed to 40 % in 2001. For example, in case of a chit amounting Rs 1,00,000, Rs 40,000 can be the maximum bidding price

The details of every member involved in a Chit must be provided to RBI along with their names and addresses

One month chit amount must be kept at the RBI until the chit comes to an end


Time taken for whole process to get Company register with Registrar of Companies will 20-25 days .