What is the difference between chit fund and collective investment scheme?

Many investors confuse between chit fund and collective investment scheme. Few think both has same concept. But, both differs a lot. Let us know each in detail.

Collective investment fund (CIF)

Collective investment fund also known as a collective investment trust is a pooled accounts that are held by either a bank or a trust company. The institution of collective investment fund groups down the assets from individuals and organisations to develop a single larger and diversified portfolio.

The two types of collective investment fund has been given below,

• A1 funds
• A2 funds

A1 funds or grouped assets are contributed for investment or reinvestment

A2 funds are grouped assets that are contributed for retirement, profit sharing, stock bonus, and other entries that are exempt from federal income tax. Collective investment funds are available for the individuals via employer-sponsored retirement plans. Other names for collective investment funds include common funds, collective trusts, and commingled trusts.

How collective investment fund works?

As known clearly, CIFs are not regulated under the Securities Exchange Commission (SEC) or the Investment Act of 1940. Instead, it operates under the regulatory authority of the Office of the Comptroller of the Currency (OCC).

The primary objective of the collective investment fund is to bring back the costs down with the combination of profit-sharing funds. In order to manage the portfolio of CIFs, many financial institutions have been using investment companies or mutual fund companies as sub-advisors.

How does chit fund works?

Unlike CIFs, chit fund is a saving cum borrowing scheme where the members of the chit contribute equal share monthly. At the same time, the auction ought to occur in the presence of the foreman (A member selected from the group). If anybody is in need of money, they can avail for it. From the total money they get, the foreman will get 5% of the total money.

This is how CIFs and chit fund differs in their working mechanism.

For more details visit: Chit Fund Software Live Demo or contact us at toll free: 1800-200-1766 / 7397723052.

What are chit funds? Should you invest in chit funds? How do chit funds work?

Chit fund works under a methodology where the chit fund member agrees to contribute a specific amount monthly. Due to this monthly saving, they ought to get a bulk amount at the end of the maturity data. Let us go with an example.

Let us consider a chit fund scheme with 10 members. All the 10 members have to contribute equal amount of money for a specific month period. For instance, let us consider all the 10 members are sharing 1000 monthly for 10 months. Hence, every member must contribute 1000 in which they will get 10000 at the maturity time. Meanwhile. During every auction, the whole amount can be auctioned by the members of the chit fund. If anyone is in need of money, they can bid the amount during the auction. If more than one member bids for money, then the one who bids lower gets the opportunity to take the money.

Out of the money, 5% will be taken the foreman. The foreman is the member of the chit fund and he is also the person responsible for the amount dealings in the auctions. If a particular member of the chit fund who bids lower amount, will get the amount left behind the 5% of the foreman’s share.

Here the work of foreman is high. He needs to keep the details of the auctions conducted at every month. He is responsible for the cash transferred among the chit members. This is how the chit fund works exactly.

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Are chit funds considered an NBFC in India?

Yes, the chit fund comes under Non-Banking Financial companies (NBFC). The chit funds have been included into the NBFC by RBI under the sub-head of MSNBC (Miscellaneous Non-Banking Company). NBFCs are similar to banks that do the same functions.

Still, there are few differences that can be spotted out.

• An NBFC cannot accept demand deposits
• And, it is not a part of the payment and settlement system
• It cannot issue cheques to its customers too
• In NBFC, DICGC is not available unlike in banks.

Though chit funds have been under NBFC, no specific rules and regulations have been meant for chit funds. As soon as many chit funds enter into the market realm, words like “scam”, “fraudulent cases”, etc have been increased. A special act for chit fund is known as the “Chit Fund Act, 1982”.

So, who will handle the operations under chit funds?

The operations including regulation and registration of the chit funds are handled by the State Government under the rules framed for them.

But, many chit funds companies have been favouring lots of members. Members of the chit funds are saving and borrowing at the same time through chit fund practices. If a company needs to qualify NBFC, it is necessary to register the company under the Companies Act 1956 and RBI act 1934.

Most of the people are not aware of the different operations included in the chit funds. It is necessary to have a glance at the chit fund rules before indulging in a new chit fund scheme.

For more details visit: Chit Fund Software Live Demo or contact us at toll free: 1800-200-1766 / 7397723052.

Who is a foreman in chit funds?

Chit fund industry has been evolving from day to day. Apart from other main factors in it, the foreman is one of the most important roles to be taken in hand effectively. The foreman of the chit fund has the same meaning as the term “foreman” in clause(j) of Section 2 of the Chit Fund Act, 1982.

As per Section 2 of the Chit Fund Act,

“(j)” The “foreman” denotes the person who is responsible to handle the chit fund process in the right flow. It may include any person discharging the chit functions or any person who discharges the functions of the foreman under section 39”.

Chit or chit fund or chitty means a transaction in which a person enters into an agreement with a group of persons. In the group, every one of the persons can subscribe to a certain amount of money on a monthly basis. In return, the subscriber can take the whole money at the particular auction. The person who bids the lowest amount wins the auction. Here, the foreman gets about 5% of the bid amount.

So, what are the duties a foreman has to do?

As per section 22 of the Chit Fund Act of 1982, here are the few duties ought to be performed by the foreman of the chit.

• The foreman must furnish the necessary security from the subscriber for future subscriptions.
• He needs to keep records regarding the monthly auctions and the subscription amount details. Other than that, he is responsible for conducting the auctions successfully.
• In addition, he will be paid a fee of 5% of the total auction amount collected.
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• In some chit auctions, agreements are signed on grounds of loyalty. At the same time, the foreman can be chosen by the members of the auction. It may be based on the elder one or the most experienced one in this case. These are the roles and responsibilities of foreman in a chit fund auction.
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For more details visit: Chit Fund Software Free Demo.

For further clarification regarding MazeChit- Chit Fund Software kindly reach us at Toll Free: 1800–200–1766 / 7397723052.

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How many types of chits are there? How they work?

In India, chit fund has been an on-growing industry that comes under a valuable saving scheme. According to the Chit Funds Act of 1982, the chit fund companies have been managed, conducted, and regulated. Though the chit fund companies in India comes under central legislation governance, state government is responsible for their administration. In particular, Tamil Nadu funds were guided by Tamil Nadu Chit funds Act of 1961, Maharashtra Chit Funds Act of 1975 in Maharashtra and in Kerala, Kerala Chitties Act 1975.

In India, there are three different types of chits available. Here are the three types,

• Funds run by State governments
• Private registered chit funds
• Unregistered chit funds

State government governed chit funds

Chit funds that are managed and regulated by state governments comes under this category. In addition, PSUs also comes into this category. As these are safe, the chances of loss are limited. Business process is also transparent and clean. Mysore Sales International Limited (MSIL) and Kerala State Financial Enterprises (KSFE) are the government managed chit examples.

Private registered chit funds

Private registered chit funds have begun in the year 1980s and are registered under Chit Fund Act of 1982. These sort of chit funds have been normally floated by financial institutes. Compared to the state government chit funds, participating in private registered chit funds is the chit investor’s own risk.

Contributing to chit funds comes under market risks and conditions. Hence, there are many co-operative societies that conduct chit funds. We cannot blame all private chit funds. Nowadays, private chit funds are also performing well when compared to government chit funds. For example, Shriram chits of Shriram Group is a well known private chit fund sector.

Unregistered chit funds

Unregistered chit funds are the type of chit funds that are not legal and are participated under the person’s own risk. Formation and management of these chit funds are fully based upon the trust of the person. Participation in such chit funds may include forming groups within their friends or relatives.

Surprisingly, the number of unregistered chit funds are at high. As registered chit funds have some sort of rules to follow, here in unregistered chit funds there are no particular rules. There are specific factors including the foreman’s commission, members’ behavior, etc.

These are the different types of chit funds prevalently used in India. Whatever the chit funds may be, managing quite lots of chit funds is troublesome. For that, you can avail the best chit fund software, Mazechit.

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How do chit funds work?

In India, chit fund scheme has become very popular in recent days. To the delight, it has become the main parts of the unorganised money market industry. A chit fund company provides the users with access to both the savings and borrowings. Chit fund companies with a great story has been paved its pathway right in the chit fund track. Here, we are going to look at the chit fund companies functions, business model and the chit fund business registration in India.

What actually is a chit fund company?

You might have heard the answer for this question in different versions. Any entity that ought to manage a chit fund schemes is a chit fund company. Such companies ought to manage different schemes. Each of the schemes has a set of members with a limited duration. At first, the chit fund companies have to be registered to start a chit fund scheme in their organisation.

In India, chit fund has been an on-growing industry that comes under a valuable saving scheme. According to the Chit Funds Act of 1982, the chit fund companies have been managed, conducted, and regulated.

Though the chit fund companies in India comes under central legislation governance, state government is responsible for their administration. In particular, Tamil Nadu funds were guided by Tamil Nadu Chit funds Act of 1961, Maharashtra Chit Funds Act of 1975 in Maharashtra and in Kerala, Kerala Chitties Act 1975.

In the registration operation, there are processes like floating of chit fund schemes, finding the potential members, enrolling the members into the chit, contribution management, chit auctions, fund distribution and book maintenance. To start with a chit fund company, registration is the prior thing. After registration, try to understand the business model of the chit fund.

All the chit schemes have a time period, contribution, and a set of members. The number of members in the chit will be equal to the time period of the chit scheme. Each member will contribute a fixed amount during every monthly auction.

Chit fund business model

Let us assume a chit fund operation with around 12 members for 12 months with a monthly contribution of 10,000 each. Every month the chit company will collect 1,20,000 rupees from the chit auction. After collecting the amount, less the chit company’s fee and the discount, the remaining will be distributed to the 12 members.

If any person is interested in receiving the auction amount, then he/she is allowed to receive the entire chit amount. If more than one individual needs money at the same month, the one with the lowest bid will be given the amount. Then, the chit discount is evenly spread among the remaining members.

This is the business model of the chit fund company. Many people may not have an idea or out figure relating to the chit funds. Few wish to start a chit fund scheme with their friends and closed ones. It also goes well and good. While going for the chit fund company, know whether the company has been registered properly in order to have a safe chit fund scheme.

For Free demo chit fund software Visit: Chit Fund Software Live Demo or Contact us at Toll Free: 1800–200–1766 or 7397723052.

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