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By joining a chit fund, a person is forced to save a small part of his income, to meet his planned/unplanned investments or expenditure. In case of contingency, borrowing from the chit fund is much easier, simpler, faster and cheaper. In case a person wants to save till the last, the return a subscriber gets by way of chit dividends is much higher.

  • Persons who want to save money and receive the prized/bid amount in the second half of the chit period, earn very much higher return (12-18% per year) than their periodic savings kept with a bank.

  • Those in need of money are able to raise money by receiving the prized/bid amount when they are in need of money. The interest or chit loss in such cases is very much less than the market rates.

  • All persons joining a chit group are forced to save a small amount of their income to finance their dream projects such as – purchasing a plot or building a house or meeting marriage expenses or buying domestic articles, or discharging an existing liability etc.

  • Each person who pays his periodic installments up to date is entitled to receive the prized amount at a period of his choice, after participating in a lottery/auction.

Since the successful bidder, in the initial few months is allowed to use the chit amount, for his personal use ahead of others, he offers to take the chit amount at a discount, after calculation interest and cost of funds. It may be noted that a successful bidder withdraws more money from the company, than he had already paid, and repays the excess amount withdrawn, in periodic installments until completion of the chit period. The excess amount so paid is known as chit loss.

Normally for all chits a minimum of three sureties or guarantors other than family members are insisted upon. The basic salary or taxable income of all such sureties or guarantors should not be less than 20% of the chits’ future liability.

The chit fund company conducting the chit business also known as Foreman charges 5% of the chit value as commission or service charge for the services rendered by it. The foreman has to gather a group of persons to form a chit group, collecting money from each subscriber every month, arranging payment of prized money to one person each month and collecting money from prized subscribers etc is work for the foreman.

All activities of the company are regulated/monitored by the government department under the chit fund Act 1982.

A chit fund company undertakes to collect periodic installments from all the subscribers and pay the amount so collected, after deduction its commission (5% or the chit value) to one of the non-prized subscriber each month. At every point in time, the chit fund company pays the prized subscriber more money, than what it had collected from the prized subscriber, on the understanding that the prized subscriber will pay the balance future installment on time. In other words, the prized subscriber takes a loan advance from the chit fund company, with an understanding to repay the balance future installment in time, to enable the foreman to pay the prized money to other non-prized subscribers each month. In order to safe guard the interest of all non-prized subscribers each month the chit fund company insists upon the prized subscriber to provide guarantee for repayment of future installments.

Penalty is collected from all subscribers who make delayed payment of periodic installments. In case a non-prized subscriber defaults for a continuous period of three months, such subscriber will be removed. The actual amount paid by him in the chit minus company commission will be repaid to such defaulting subscriber, after completion of the cit period. In case a prized subscriber defaults for a continuous period of three months, a penalty of 6% per month will be collected and dividends will also not be paid to such defaulting prized subscriber. Legal action will be initiated against the said defaulting prized subscriber and his guarantors in court of law, for recovery of all dues.

When a subscriber withdraws, the foreman has to find an alternate subscriber in his place. Until then the chit fund company has to arrange funds on behalf of such a defaulting subscriber, for payment to a prized subscriber each month. Hence withdrawal is permitted, but the actual amount paid by the subscriber in the chit minus company commission will be repaid to such a defaulting subscriber at the end of the chit period.

Payment can be expected after completion of documentation.

The chit loss can be deducted from the income from profession or business. The net surplus or dividends after completion of the chit period need to be offered as income, but some courts have ruled that this income is not subject to income tax.

Cash, cheques, demand draft, pay order and bank transfer are accepted modes of payment.

A subscriber can participate in not more than three chits in the same chit group.

The chit groups vary from fifty thousand to five lakhs.

All the dividends receivable till date of joining the group are earned by the member joining a vacant chit.

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Amaravathi Chit Fund (P) Ltd.
173, First Floor, Raahat Plaza,
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Chennai-600 026,

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Name : Arvindraj.V.S

A/c No : 21260110036389

IFSC  : UCBA0002126

Bank name : UCO Bank

Branch : Valasaravakkam Branch, Chennai

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