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Is Chit Funds being Safe? – Legal Sanctity

Like any other approved investment, Chit funds are also fully governed by a central Act called Chit Funds Act, 1982. It’s a detailed Act covering all the aspects of Chit fund transaction for the protection of both the investors(subscribers) and the company (Foreman). Appended below are some of the provisions of the Act to understand the in-depth of the Law.

Chit Funds Act, 1982 (Central Act No 40 of 1982)

Section
Provide for/Speak about
Remarks
4
Prior Sanction
No chit shall be commenced or conducted without obtaining the previous sanction of the State Government.
5
Prohibition of invitation for subscriptions without Prior Sanction
No person shall issue or cause to be issued any notice, circular, prospectus, proposal or other document inviting the public to subscribe for tickets in any chit unless such notice, circular, prospectus, proposal or document contains a statement that the previous sanction required under Section 4 has been obtained and the particulars of such sanction.
6
Form of chit agreement
Mentions about particulars to be included in the Chit agreement
7
Filing of chit agreement
Every chit agreement shall be filed in duplicate by the foreman with the Registrar.
8
Minimum capital requirements for the commencement, etc., of a chit, and creation of a reserve fund, by a company
Speaks about the paid -up capital requirement of the company
 
9
Certificate of Commencement of Chits
Every Foreman shall, after all the tickets specified in the chit agreement are fully subscribed, file a declaration to that effect with the Registrar. No foreman shall commence any auction or the draw of any chit or appropriate any chit amount unless a certificate of commencement is obtained by him.
 
10
Copies of chit agreement to be given to subscribers
A foreman shall, as soon as may be after he has obtained the certificate of commencement, but not later than the date of the first draw of the chit, furnish to every subscriber, a copy of the chit agreement certified to be a true copy.
 
13
Aggregate amount of chits – Net Owned Fund requirement
Speaks about the “net owned fund” requirement of the company- maximum Chit amount to be conducted
 
14
Utilisation of funds
Mentions about the utilisation of funds collected by the Foreman from the customers
 
20
Security Deposit to be given by foreman
Foreman Shall deposit an amount equal to the chit amount in the name of the Registrar for every Chits
 
20-26
Rights & Duties of foreman
Speaks about various rights & duties of Foreman including the books & records to be maintained. The percentage of Foreman commission to be collected (currently 5%) is also specifically mentioned.
27-30
Rights & Duties of Non-Prized Subscribers
Detailed description of Rights & Duties of Non-Prized Subscribers
 
31-33
Rights & Duties of Prized Subscribers
Detailed description of Rights & Duties of Prized Subscribers
 

Likewise, there are 90 sections in the Act covering all the aspects of the Chits.

We have very good legal frame work in place. Now it is essential for customers to identify a chit company which maintain the highest level of regulatory compliance.

It is highly critical, important and recommended that one should invest in a chit fund only through a trusted company having proven track record and maintain the highest level of ethical standards, best practices, professional integrity, corporate governance and regulatory compliance. Muthoot Pappachan Group with decades of existence & TRUST, is the Ultimate answer.