Chit Fund

What Is Chit Fund?

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 (or a certain quantity of grain instead) 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

How It Works?

Chit funds operate different ways, and there are also many fraudulent tactics practiced by private firms. The basic necessity of conducting a 'Chitty' is a group needy people called subscribers. The foreman—the company or person conducting the chitty—brings these people together and conducts the chitty. The foreman is also responsible for collecting the money from subscribers, presiding over the auctions, and keeping subscriber records. He is compensated by a fixed amount (generally 5% of gross chitty amount) monthly for his efforts. Other than that, the foreman has no specific privileges, he is just a chitty subscriber. A simple formula depicts the pattern of the chitty:

Monthly Premium × Duration in Months = Gross Amount

E.g., 1000 * 50 = 50,000/- Where 1000 is the maximum monthly contribution needed from a subscriber, 50 is the duration of the chitty in months and 50,000 is the maximum sum assured. The duration also equals the number of subscribers, as there must be (not more or less) one subscriber to receive the prize money every month.

The chitty starts on an announced date, every subscriber come together for the auction/lot. As per Kerala chit act, the minimum prize money of an auction is limited to 70% of the gross sum assured that is 35,000 in the above example. When there are more than one person willing to take this minimum sum, lot are conducted and the 'Lucky subscriber' get the prize money for the month. If there is no person willing to take the minimum sum, then a reverse auction is conducted where subscribers open-bid for lower amounts; that is from 50,000 >> 49,000 >> 48,000, and so on. The person bidding lowest sum get bid amount.

In both the cases the auction discount, that is the difference between the gross sum and auction amount, is equally distributed among subscribers or is deducted from their monthly premium. For example, if the auction is settled on a sum of 40,000, then the auction discount of 10,000 (50,000 - 40,000) is divided by 50 (the total number of subscribers) and every one gets a discount of 200. The same practice is repeated every month and every subscriber gets a chance of receiving some money.

Chit Fund Act, 1982

“approved bank” means the State Bank of India constituted under Sec.3 of the State Bank of India Act, 1955 (23 of 1955), or a subsidiary bank constituted under Sec.3 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), or a corresponding new bank constituted under Sec.3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970). or a Regional Rural Bank established under sec.3 of the Regional Rural Banks Act, 1979(2) of 1976), or a corresponding new bank constituted under Sec.3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or a banking company as defined under Cl.(c) of Sec 5 of the Banking Regulation Act, 1949(10 of 1949) or a banking institution notified by the Central Government under Sec.51 of the Act or such other banking institution as the State Government may, in consultation with the Reserve Bank, approve for the purposes of this Act

Government Chits

 Government of Karnataka Undertaking established in the year 1966, is toady a vibrant, multi-product, multi-dimensional marketing organization.

Example:MSIL started Chit Fund business in the year 2005 with an intention to bring social control over Chit Fund business so as to protect the public from being exploited by unregistered/unorganized chit operators. As a Government Company with more than 40 years of existence, MSIL has a reputation in the market for stability, reliability and integrity. Trustworthiness, transparency in operation, past proven performance and familiarity are important prerequisites of a Chit Fund operator. MSIL has all these credentials, being a Govt. Company.

Non Government Chits

Organised chit funds

In North India, a common type of chit fund uses small paper slips with each members name, gathered in a box. When all members are at a monthly or weekly meeting, the one in charge—in front of the other members—picks a slip from the box. The member so selected gets that day's collection. Afterwards, that persons name slip is discarded. Thereafter, he comes to the meetings and pays his share, but his name isn't selected again.

Special purpose funds

Some chit funds are conducted as a savings scheme for a specific purpose. An example is the Deepavali sweets fund, which has a specific end date about a week before Deepavali. Neighbourhood ladies pool their savings each week. They use this fund to buy and prepare sweets in bulk just before the Deepavali festival, and they distribute sweets to all members. Preparation of Deepavali sweets may be a time consuming and costly activity for individuals. Such a chit reduces costs, and relieves members from extra work in a busy festival season. Nowadays, such special purpose chits are conducted by jewellery shops, kitchenware shops, etc. to promote their products.

Online Chit Funds

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 has an online account to manage their chit funds.

SIDSOFT ChitFund Software Details:

SIDSOFT ChitFund software is a web based application for Chit Fund Companies.Provide secured online access to it members. Members can see next payment information, amount to be paid along with Loan details etc.

It comprises of all the essential facilities and features which required to streamline your Chitfund Activites.SIDSOFT ChitFund software is simple and easy to understand.A person having basic computer knowledge can master this software in very less Time.

This software is designed to systemize the work of the chit that is being organized by the person who conducts that chits. This software systemizes all the activities that are being carried out by the chits. As a whole this is efficient for all organization those organize chits.

SIDSOFT ChitFund Software includes

General features

  • Subscriber Ledger.
  • Group Wise Outstanding Statements.
  • Collection Wise Outstanding Statements.
  • Branch Wise Outstanding Statements.
  • Company Wise Outstanding Statements.
  • This Allows The User Creation As Per The Permission Given By The Admin.
  • This Software Can Efficiently Handle Chit Details.
  • These Can Maintain Customer Details.
  • These Can Maintain The Chit Taken Details Of Every Individual Customer.
  • These Can Efficiently Handle Amount Collection Details.
  • Prized Subscriber List.

Reports

  • Reports Are Generated Instantly.
  • Date Wise Reports Can Be Generated.
  • Loan Id Wise Reports Can Be Generated.
  • Customer Wise Reports Can Be Generated.
  • Monthly Wise Reports Can Be Generated.
  • Name Wise Reports Can Also Be Generated.
  • All Outstanding Report.
  • Prized Summarized Outstanding Report.
  • Non Prized Summarized Outstanding Report.
  • Auction Dates List

Utilities

  • Excel Data Import.
  • Excel & PDF Data Export.