The Concept of Chit Fund Company and How to Register It

Chit Fund Company Registration Process

Chit fund is a popular option for saving by contributing money in India. It is an unorganized money market industry which runs a chit company and provides access to borrowing money for people who do not have access to banking facilities. You might know chit funds by the name Committees. In this blog you will get to know all about chit fund companies.

What is a Chit Fund Company?

A Chit fund is a type of Non Banking Finance Company {NBFC} which regulates under Section 2 of Chit Fund Act, 1982. This type of company does not comply with the rules of the Reserve Bank of India. It works on the concept of savings and borrowings. Chit Fund Company is organized by formal institutions or informally among family members, friends, relatives or neighbors. The terms used in a chit fund company include;

  • Foremen: are the people who manage the chit fund activity and charge a commission up to 5% of the total chit amount.
  • Members: are the people who contributes chit amount monthly
  • Bid amount: is the total amount of money contributed by members
  • Dividend: is the total money collected by the member at the end minus the commission charged by the foremen

Are Chit Fund Companies Legal in India?

Chit fund companies are legal in some states and union territories in India. Chit businesses are run by the respective State Government.

The provision of the Chit Fund Act, 1982[1] is applicable in the following states with their date of inaction are as follows;

  • West Bengal on 2nd April 1984
  • Tamil Nadu on 13th April 1984
  • Himachal Pradesh on 1st November 1984
  • Sikkim on 6th November 1984
  • Andaman and Nicobar islands on1st July 1985
  • Pondicherry 1st November 1986
  • Rajasthan on 1st July 1989
  • Assam on 1st March 1990
  • Manipur on 1st November 1994
  • Tripura on 1st march 1995
  • Bihar on 2nd October 1987
  • Punjab on 1st April 1999
  • Karnataka on 2nd January 1984
  • Chandigarh 1st May 1984
  • Dadra and Nagar Haveli on 3rd September 1984
  • Orissa on 1st September on 1985
  • Goa, Daman and Diu on 1st January 1986
  • Meghalaya on 2nd January 1988
  • Uttar Pradesh on 1st February 1988
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A Brief Note about Chit Fund Act, 1982

In 1982 the Ministry of Finance enacted the Chit Fund Act for regulating and to monitor the functioning of the chit fund companies in India.  The respective states are responsible for formulating laws. Also the state governments possess the power to banish a company from its responsibilities who fail to comply with the rules of this act.

Under this act all chit funds need a previous approval from their respective state governments.

Each company requires Rs.1 lakh to establish their business and transfer at least 10 % of their profits to the reserve funds.

Note -Anyone who wishes to start a chit fund needs to apply for registration in their city or district’s chit registrar.

How does a Chit Fund Company Function?

The Section 2 of Chit Fund Act, 1982 specify the working of these funds and the definition of chit.

A person makes an agreement with a certain number of people to contribute money together for a specified period of time and each member claims the prize amount at the end. This is the concept of chit.

A chit business means conducting a chit.

Are Chit Funds Safe?

These features prove that they are safe:

  • The owner of the fund has to submit 100% of the chit amount to the registrar
  • The deposited amount can only be drawn when the particular chit closes/ ends
  • The Chit Fund Act, 1982 govern these type of companies
  • The chit registrar is appointed by the Government of India under Section 61 of Chit fund Act
  • The chit company should be registered
  • Every chit is drawn by giving a prior notice to the state government
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Documents Required for the Registration of a Chit Fund Company

The following documents are required In order to register your company:

Every director and member needs to submit;

  • PAN Card
  • ID Proof
  • Any documents from the following: Bank statement, electricity bill or telephone bill
  • Other documents required by chit registrar

Documents as a proof of address

  • Rent/ ownership agreement
  • Electricity bill
  • A copy of No Objection Certificate

The Eligibility/Components of a Chit Agreement

Chit agreement is a document offered to each member who has invested in the company. The rules for the chit scheme set by the Chit Fund Act stipulate that;

  • every chit agreement needs to be in duplicate and should duly be signed by each subscriber/ member or the person authorized by them in writing
  • the foremen should be attested by two witnesses and it should contain the following information, namely:
  • full name and address of each member
  • the number of tickets and fraction of each ticket which the member has
  • number of installments, the amount payable to the member on each installment and the penalty in the case of fraud/failure
  • date of commencement and the period of the chit
  • the maximum amount of bid which the member forgo
  • the mode and portion of the bid in the form of dividend
  • the date, time and place
  • the installment when the bidder receives the chit amount
  • the terms and conditions under which a member is declared a defaulter
  • the forms in which a member offers a security
  • names of the nominees of the subscriber
  • any other required documents
  • Step by step procedure for registration of a Chit Fund Company
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The procedures to register a Chit Fund Company are as follows;

STEP 1: Apply for a Director Identification Number {DIN} and Digital Signature Certificate.

STEP 2: Pick a name for your organization. The name you choose for your company should;

  • Be unique and should not be another existing organization’s name
  • The name of the company must contain “Chit Fund” as prefix or suffix

STEP 3: Set up reports and do all the legalities . The most important records that an enrolled company needs to submit to the Chit Support Enlistment Center are Memorandum of Association {MOA} and Articles of Association {AOA}

STEP 4: Gather the least capital required for the registration of your company, which is Rs. 1 lakh.

STEP 5: After preparing all the required reports the last step is to file a petition for the enrollment of your company

How to save yourself from scams?

There are many unregistered chit funds and can commit frauds. You need to be aware to save yourselves from scams. Follow these tips before investing in a chit company:

  • Check the official website of registrar of your state for the particular chit you are going to invest in
  • If the name of the fund you are going to invest in is specified there or not
  • Only then invest in that company

chit fund company

List of Top 10 Chit Fund Companies in India

The following companies are the top 10 Chit Companies running in India;

  1. Guru Nanak chit fund pvt ltd
  2. Kumaun anusuchit janjati vikas nigam limited
  3. MKG chits pvt ltd
  4. Purasawakam santhatha sanga nidhi ltd
  5. Gielle investments ltd
  6. Purasa wakam dhana vardhana saswatha nidhi limited
  7. Slotco chits(Haryana) pvt ltd
  8. Amurthadhara chits and finance pvt ltd
  9. Louis chit funds pvt ltd
  10. Dig Vijay chit funds pvt ltd

For complete list visit the official MCA website[2] containing the full list of chit companies in India.


A chit fund company is an informal financial body which does not follow the rules specified by the Reserve Bank of India. It is not specifically an NBFC. These type of companies are helpful in areas where there is the scarcity of any financial institution. They serve a substitute for formal economic bodies like banks in places like a village or far fetched areas of our country.

Read our article:Now Mutual Funds Investment May not be Desirable Source of Capital for Firms and NBFCs

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