A project report on cutomer attitude towards investing in chit funds & customer satisfaction measurement

Customer attitude towards investing in chit funds & Customer
satisfaction measurement

Contents

1. Executive Summary

2. Introduction 1–6

3. Chit Fund – Overview 7 – 42

4. Design of the study 43 – 46

5. Company Profile 47 – 51

6. Analysis & Evaluation 52 – 73

7. Findings 74 – 75

8. Conclusion & Suggestions 76 – 77

9. Bblography 78

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Executive Summary

Panchajanya Chits Pvt. Ltd (PCPL) is the 1 st registered chit funds co., in the State of
Karnataka, registered under the Chit Funds Act 1982.

The company being registered under the Companies Act 1956, began its operations in
1984. PCPL is the 1st licensed chit operators coming under the preview of Chit Fund
Act, RBI and Registrars of Company

The company has a member profile of more than 250 registered business class
customers and 100 employed customers participating actively in its chit programmes /
schemes

Presently the company offers the following chit schemes.

Chit Value Months No.of Monthly Subscription
Members
Rs. 1 lakh 40 40 2500
Rs. 5 lakhs 50 50 10000
Rs. 10 lakhs 25 25 40000
Rs. 25 lakhs 25 25 100000

STATEMENT OF PROBLEM

Chit funds in an age old unorganized non banking financial institution over the years
both the Government and players in this industry have tried to organize this important
institution which has been contributing significantly to the economic development of
the country.

Both the foreman and subscribers were incurring losses due to unorganisation and
lack of state control over the chit business.

The Chit Funds Act 1982, was a major step towards organizing this activity. The
efforts in this direction have however not been totally successful. The chit fund



operators still face problems as to the default by subscribers on payment, insolvency
of subscribers and fraudulent activities of the subscriber.

This project study is based on the pronounce of chit industry, Profitability in investing
in Chit funds and an attempt is made to find out the implications of running the chit
funds and offer suggestions.

SCOPE OF THE STUDY

The project report covers the Chit Fund Act 1982, the influencing authorities of chit
funds, a Company Profiles, an Analysis of the data collected from 50 respondents and
their views on chit business and chit funds as a source of finance. The Analysis and
evaluation of responses about the risks, advantages of the role of chit funds in the
economic development of the country.

A reader of this project report would get exhaustive information on the operation of
chit business, the legal framework binding chit operators with reference to the PCPL.

OBJECTIVES OF THE STUDY

The general objectives of this project are to present a consolidated report on the
“Profitability in investing in Chit funds of the Country with specific reference to
‘PCPL’”.

The other objectives are :
a) The functioning of chit funds.
b) The legal framework governing the chit fund industry.
c) The member profile required for membership of PCPL.
d) To know the attitude of the customers about investing in the chit funds.
e) Customer satisfaction measurement of PCPL.



Research Design
a) Type of Research Study: A social research on Financial activity for
economic development using data collected from Respondents as primary data
and theoretical data as secondary data.
b) Tool for Collection Data: Structured Questionnaire both for the members of
the company and the company.
c) Sample Design: Selected Targeted Company, i.e., PCPL and 50 Respondents
selected as Random Sample Method.
d) Method of Collecting Data: Interview method and investigative method.
e) Method of Analysis: Quantitative and Descriptive Analysis.

Limitations

The project being for educational purpose, was restricted to the study of one chit fund
operator being PCPL. Since the study was restricted to one chit fund operator, the
study cannot be generalized. Lack of availability of theoretical information on chit
funds was one of the major constraints faced. Due to the constraints of time and
money, the number of respondents has been restricted to 50 members only. The
information has been collected from the Chit Fund Act, Company Profile and
Respondents only.

On the analysis and evaluation of the data collected from the Respondents

The respondents are mostly from the business community and their atitude towards
investing is very favorable, and as far as PCPL the customers are very much satisfied
with the services provided by the company and are very loyal t te copmany.
The members have selected chit funds because of various reasons among which
following are important reasons.
i. Money is easily available.



ii. It can be repaid in easy monthly installments.
iii. Procedural and documentation formalities are very less.

III SUGGESTIONS

Though the PCPL scheme has been well accepted by the members, yet based on the
study made the following suggestions are offered to improve functions of the Chit
Fund.

1) The company PCPL can be more aggressive and increase its membership
profile.
2) The risk factors can be covered by the company by making a good study
of membership profile.
3) The risk perception of subscriber can be overcome, by the company by
making its transaction more transparent.
4) The company can introduce more schemes, based on a survey and thus
making the company more attractive or beneficial to the members.
5) The company can reduce its commission charges from 5% to a lower rate,
thus will increase the scope for more individuals.
6) The company can consolidate the chit business by insuring each scheme
against any risks.
7) The company can introduce incentive or schemes, so as to motivate the
subscribers to make prompt payment of subscription money.
8) The company can introduce lower amount chit schemes and tap the large
lower middle income group people.
9) The general public has to be communicated the advantages of Registered
Chit Funds.



A study with Panchajanya Chit Pvt. Ltd.
Questionnaire for Members:
1. Name:

2. Age:

3. Address:

4. Qualification:
Under-Graduate  Graduate  Post-Graduate 

5. Occupation:
Employed by Others  Business  Others 

6. what type of Business:

7. Annual Income (If Employed):

8. What is your Annual Income ?
(If Salary earner)
2 – 3 Lakhs  3 – 4 Lakhs  Above 4Lakhs 

(If Business)
a. Turnover: Upto 25 lakhs  25-50 lakhs  0.5-1 crore 
Above 1 Crore 

(If Ohers)
2 – 3 Lakhs  3 – 4 Lakhs  Above4Lakhs 

9. Since when are you a member of PCPL?



1-2 yrs  2-3 yrs  3-5 yrs 
5-10 yrs  10 or above 

10. In which Chit group are you a member?

a. Chit Amount
Rs. 1 lakh  Rs. 5 lakhs  Rs. 10 lakhs  Rs. 25 lakhs 

11. When do you normally bid for the Chit?

B/w 2nd -10th month  B/w 11th -20th month 

B/w 21st -30th month  30th month Onwards 

As need arises 

12. What is the Maximum percentage you would forego?

5-10%  10-15%  15-20%  20% onwards 

13. For what purpose do you use the Chit Amount?

Business Investment  Private Property 

Working Capital  Business Assets 

14. Do you give any Security, when you draw a Chit?



Yes  No 

15. What according to you are the advantages of Chit Fund?
Money is easily & quickly available  Repayment in easy instalments

The profits distributed as dividend  Interest is low

Easy Membership 

16. Is investing in Chit Funds profitable?
Yes  No 

17. Does investing in Chits gain more profit than any other Financial Institution?
Yes  No 

18. The interest rate on foregoing the Amount is
High  Low 

19. Are you happy with the Service being provided by PCPL?
Yes  No 

Signature.



Finance Meaning & Concept

Finance is the lifeblood of any business organization. It is the most vital resource of any
organization.
In general, finance may be defined as “The provision of money at the time it is wanted”.
A firm secures capital it needs and employs it in activities, which generate returns on
invested capital. The firm employs capital in production and marketing functions.

Correspondence Concept and Definitions ( Meaning of Finance )

Finance is the process of conversion of accumulated funds to production use. It is
commonly known as “Service of Money”.

Finance may be defined as that administrative area or set of Administrative functions in
an organization which may be related with the arrangement of cash and credit so that the
organization may have the means to carry out its objective as satisfactorily as possible.

“ Corporation finance deals with the financial problems of corporate enterprises. These
problems include the financial aspects of the promotion of new enterprises and their
administrative during early development, the accounting problems connected with the
distinction between capital and income, the administrative questions created by growth
and expansion and finally the financial adjustment regarded for bolstering up or
rehabilitation of a corporation which has come into financial difficulties “ Encyclopedia
of Social Services”.

Function of Finance

There are 2 types of Finance Functions

I. Managerial Functions.



II. Routine Functions.

Managerial Functions

1. Funds requirement decision

It relates to allocation of capital and involves decision to commit funds for long term
assets which would yield benefit in the future. Its significant aspect in the task of
measuring the prospective profitability of new investments.

2. Financing Decision

A finance manger has to decide when, where and how to acquire the funds to meet
the firms investment needs. The central issue before him into determines the
proportion of equity and debt. The central mix of debt and equity is known firms
capital structure. The firm’s capital structure is optimum when the market value of
shares is maximized. When the shareholders returns is maximized with minimum
risk. The market value per share will be maximized and the firms capital structure
would be optimum.

3. Dividend Decision

The dividend decision should be analyzed in relation to the financing decision of the
firm. This decision involves the determination of the percentage of profits earned by
the enterprise, which is to be paid to its shareholders. A number of factors like market
value of shares, the trend of earnings, the top position of the shareholders play an
important role in determining the dividend policy of business.



4. Investment Decision

This relates to the decisions relating to the invetment in current capital assets. The
finance manager has to evaluate different investment proposals keeping in view the
overall objective of the enterprise.

The investment in current assets will depend on the credit and inventory policies
persuaded by the company. These policies are sent on the basis of sales forecast,
demand and supply of materials etc.

The investment decision determines the asset portfolios of the firm and the business
risk complexion of the firm as perceived by the investors. Investment decisions have
the following dimensions
a. Scanning and selecting new investments.
b. Managing existing efficiently.
c. Mergers and acquisitions including the international aspects in the context of
globalisation investment opportunities.

II Routine Functions

1. Operations Management.
2. Liquidity Organization.
3. Balance between receipts and payments.

Finance as base for economic activity

1. Capital Formation



Capital formation is the process of additions to the capital stock or capital goods. The
addition refers to the net additions or net investments, i.e. the total investment in the
existing stock of capital.

Capital formation facilitates capital widening, which result in new workesr provided
with the same level of capital as old workers. Where in growth in real capital stock is
just equal to the growth of labor force.

Capital formation makes possible capital deepening increasing the amount of capital
that individual worker has at his disposal.

It receives proficiency of labor, promotes technical advancement, helps overcome
problems of agriculture, helps in capital accumulation.

2. Capital Output Ratio

The capital output ratio may be defined as the relationship of investment in a given
economy or industry for a given period of time to the output of that economy or
industry for a similar time period.

The capital output ratio thus determines the rate at which output grows as a result of a
given volume of capital investment. The capital output ratio thus determines the
actual output of a country’s based on its capital investment. It depends upon
technological and organizational progress so that capital may be used more
productively.

3. Dynamic Entrepreneurship

An entrepreneur or an organizer acts merely as an agency for bringing together the
various agents or factors of production and undertaking to remunerate them for the



work done. An entrepreneur always tries to widen his capital, under his profit margin,
adopting new methods of technology, and improved methods of production. Thus
triggering economic growth of a country. Finance being an important aspect, it is very
vital role of entrepreneur in mobilizing the resources.
4. Domestic Savings

Every individual makes some amount of savings either as bank deposits or jewellery
or investments in companies’ shares and debentures or his personal cash balance.
This savings habit regulates the fund mobilization cycle and there is enough
purchasing power with every individual. Once this stage is achieved, the country’s
development rate moves with an upward trend.

5. Technology and Technological Changes

India’s input investment in research and development activities both in public and
private sector has increased very much considerably. Thus as a result of this, the total
output in technological advancement also has increased efficiently. Improvements in
technology or know how results in better process of production, better products and
services, and also a lower cost of production, thus improving the level of economic
activity.

6. Ensuring full capacity utilization

Ensuring a full capacity utilization would lead in economics of scale and prevent any
kind of idle in machine or man hours, thus leading to effective utilization of all the
factors of production. A full capacity utilization would lead to a full pledged
employment and thus a proper distribution of income.

7. Literacy and Education



Literacy and education are the pillars of human resource. A well educated person can
contribute efficiently to the economic development of a country. A well educated
citizen understands his social, political, economic and natural responsibilities. He also
understands his role in the country and thus an effective contribution by such
educated citizen booms up the development or growth rule of a country.

8. Agriculture

Agriculture is the basic occupation of any developing or underdeveloped country. A
country self sufficient in its agro produce can compete itself for a position among
others in the world. However it is mainly industries that trigger growth, but industries
are also dependent on agriculture for raw materials. Labor and also for selling their
products etc,.
“Agriculture is the back bone of any economy”

9. Banking

The banking structure or banking system in a country is very important. Banking
basically includes services, but its main component is mobilization of funds. With the
new technological advancement, banks have speedened up the process of transfer of
money thus resulting in an increase in the growth rate of the economy. Banks also
create savings habits among the citizens of the country. Apart from that the backs by
their interest rates for lending, determine the inflation index of a country, the lower
the rat6e of interest, the lower the rate of increase in inflation.

10. Employment

Employment refers to effective utilization of the available work force in the country.
A 100 % level of employment in a country ensures a contemporary growth in the
economy. When the employment rate is high, the other economic hassles such as



poverty, etc get eradicated and thus contributing to the national income and finally the
per capita income of the country. It also includes the workforce, occupational
structure.

Chit Funds - Overview

The economic development of a country depends upon the availability of resources.
The main activities that contribute to the growth are production and employment.
Production depends upon the inputs of the factors such as finance, raw materials.
Labor etc. The most important here bring finance, which is the chief mobiliser of all
the factors of production.

In a money economy, finance for development initially comes from private savings.
These private savings give to the secondary deposits; this is where the financial
institutions come into picture. Financial institutions occupy a central place in
mobilizing savings from the people and make it available to the trade, commerce and
industries either as a capital or loans.

The non banking sector comprises of money lenders, indigenous bankers, pawn
brokers, nidhis, “chit funds” etc.,

The origin of chit funds can be traced way back to the 17 th century when the
economic wizards of state of malabar ( now known as the state of Kerala) started this
activity. Those were the people who actually founded this financial institution. It
became so popular and numerous that people started adopting this activity as a
profession by the 18th century all over. As the chit industry grew the number of people
involved in this industry also grew. This gave rise to many misconceptions, frauds,
mismanagement etc., in this industry. To prevent this State Government of



Travancore took the first initiative and introduced the first Chit Fund Regulation
being the Chit Fund Act 1914. One important regulation introduced by this act was
that of a commission payable to the foreman. The Act brought about a ceiling limit on
the commission payable to the foreman that is 5% maximum which is still the same
even to this date.

Chit Funds are co-operative in nature. It is a Financial institution wherein few people
join together and form a group. All the people are called as the members of the chit
group. The chit activity beings by every member contributing a certain sum of money
or moneys worth to a common fund created by them. Any one among the members of
a chit fund takes the initiative to be the incharge or trustee of such common fund.
This common fund is utilized to the benefit of the members of the chit fund. Any one
of the members becomes the beneficiary on the first auction of such fund. The circle
continues by members continuously contributing by equal installments and members
benefit by individual at a time. This is known as chit funds.

However over the period of time as the compliments in human activities and business
increased the chit funds also grew considerably simultaneously a few of the members
took up the job of conducting chit funds as their business.

Initially Chit Funds were mainly limited for the use of domestic purposes being that
of Marriages, family functions, social functions, education etc. but over the centuries
chit funds have secured their way through and now reached the stage as a source of
finance for business activities. Chit or chit funds, which have not yet come to the lime
light in the financing sector, actually play an important role in the mobilization of
financial resources.

The chit funds market can be classified into the

1. Registered chit fund operators.



2. Unregistered chit fund operators. (Illegal chit fund operators)

Registered chit fund operators are those who are licensed (registered) under the Chit
Fund Act, and registered under the Companies Act, and also come under the preview
of RBI.

Unregistered chit fund operators exist all over India. They exist in cities, towns,
villages, and are more prominent in the southern part of the country.

The ratio of the registered chit fund operators to unregister or illegal chit fund is
1:100, i.e., for every single registered fund operators there are 100 illegal chit fund
operators.

The registered chit fund turnover of our country is estimated to be around 10,000
Crores P.A. (as per the latest article in the Economic Times), however the
unregistered chit fund turnover in our country is estimated to be 100times as that of
the registered chit turnover. This underlying the importance of chit fund in our
country and their ability to mobilize resources in our country. Chit funds are believed
and trusted to be the most convenient system of financing or savings. The chit funds
are procedure and documentation free, which makes them more attractive.

An important statistics about chits reveals that

“ For every 10 businesses there is one chit operator ”

“ For every 50 employees there is one chit operator ”

“ For every 100 house wives there is one chit operator ”



(Based on the research conducted by PCPL)

The above statistics reveals to us the intensity of chit activity in India and its growth.

Chit Fund Procedure

The chit operators or the foreman takes the initiate as to starting a chit group. The
foreman based on these surveys of potential subscribers or based on his own decision
determines the amount of the chit, the time period of such chit, the number of
members, the number of installments and the amount payable on each instalment.
Once the foreman has decided on the chit group he has to go ahead with the
procedural formalities as follows.

I Fixed Deposit

The forman has to create a fixed deposit with a scheduled bank upto 100% of the chit
value as per the Chit Fund (Karnataka) Rules 1983. This fixed deposit is accountable
to the foreman. The period of the fixed deposit has to be the same as that of the chit
group or anything exceeding that.

II Application of the prior sanction certificate

The foreman after obtaining the fixed deposit has to now make an application for
prior sanction. This application is to be made to the registrar or the officer incharge
of chit funds in that particular state. The application should also have the original
copy of the fixed deposit. The registrar after receiving such application and deposit
certificate would issue the prior sanction certificate.



III Formation of chit group.

The foreman is allowed to communicate or advertise about the new chit group only
after obtaining the prior sanction certificate. The foreman now invites application
from prospective subscribers. The application is in the form of chit agreement, which
is filled in triplicate by the subscribers and duly signed and attested. The foreman has
to now sort all these application in order.

IV Certificate of Commencement

The foreman after collecting all application from the subscribers and deciding on the
number of subscribers for the chit group has to make an application to registrar for the
certificate of commencement. The application should accompany all the applications
received by the foreman from the subscribers. The registrar on proper scrutiny of the
application and collection of the charges would issue the certificate of commencement
and also attest the applications received.

V Communication of Certificate of Commencement

The foreman has to now communicate to all his registered subscribers the receipt of the
certificate of commencement and he has to send the chit agreement duly attested and
signed by the foreman himself and the registrar. The foreman also collects the first
instalment of the chit.

VI. Chit Auction

The date and time of auction is decided and communicated to all the subscribers. All the
subscribers interested in drawing the chit amount make themselves present at the auction.



There should be a minimum of 2 subscribers present at the auction as per the Chits Funds
Act 1982.
The chit auction is conducted in the presence of all the subscribers and the foreman
himself. The auction begins on the order of the foreman. The bid for the auction has to
start from 5% of the chit amount which can go up to a maximum of 30% of the chit
amount. The subscribers who are in immediate need of funds make to higher bid. The
subscriber making the highest bid to forego the maximum percentage is declared as the
Prized subscriber in the presence of all the other subscribers. In case there are more than
two subscribers who are willing to forego the maximum of 30%, the prized subscriber is
decided by a lucky draw.

VII. Payment to the Prized subscriber and Security.

The foreman is liable to pay the amount in full to the subscriber as per the bid. The
payment has to be made within a maximum of 30 days from the date of such auction or
before the next draw.

VIII. Distribution of Surplus as Dividend.

The amount foregone by the prized subscriber is the Surplus for the chit group. This
surplus is to be distributed equally among all the subscribers also known as Dividend.
This surplus can be distributed either in cash or can be adjusted towards the next
installment of such chit.

IX. Minutes of the Chit.

The minutes of the chit along with all the details of the prized subscriber, the amount
foregone by him etc., are to be communicated to the Registrar of Chits. This report has to
be submitted to the Registrar within a maximum of twenty one days from the date of such
auction.



The cycle continues by the Foreman collecting the next installment from the subscriber
and making the next auction.

CHIT FUNDS AS TAX PLANNING TOOL.

An important advantage of Chit funds is its tax saving aspect. Income Tax Act of 1961
provides a special benefit to chit fund subscribers. The chit subscribers are allowed to
write off their chit loss against their source of income. This can be best explained with
the following example

Assumptions

1) Mr. ‘X’ is carrying on a proprietary business, and has a net income under the head
income from business of Rs. 2,00,000/-. Also assuming that Mr. ‘X’ has other
sources of income which set off the basic exemption and the differential rates of
tax and that his business income of Rs. 2,00,000/- is qualifying for 30% tax
bracket.

Then the tax payable on his business income is

2,00,000 x 30% =Rs. 60,000.



But if he is a chit subscriber and that he has drawn a chit by foregoing Rs. 30,000/- he
can set off his this chit loss of Rs. 30,000/- against his income from business. Thus his net
income from business would be Rs. 1,70,000/-. The net tax payable on this amount is Rs.
1,70,000/- is

1,70,000 x 30% =Rs. 51,000.

The net savings that Mr. ‘X’ is making on his tax liability is Rs. 9,000/-. Thus, by
investing in chit funds Mr. ‘X’ is saving Rs. 9,000/- and this amount reduces his interest
burden of drawing such a chit.

CHIT FUNDS AS COMPARED TO OTHER SOURCES OF FINANCE

Any business organization has to its options various sources of finance. It is purely a
decision of the businessman as to choose which source. While taking such a decision
every businessman would look into the costs, advantages and disadvantages of every
source and thus determine the best source. The different sources of finance have already
been discussed in this Project Report. The short term sources being Bank Overdraft, Cash
Credit, Money Tenders, Trade Credit and Chit Funds.

Chit Funds as a source of finance have occupied a very important place in the business
activity. Most important advantage of chit funds is the lowest effective interest rate. This
particular advantage has been emphasized throughout this project. Chit funds along with
its other advantages has proved a point as a position in the company sources of finance.
The aspect of lowest interest rate can be explained as below with the following example:

Assumptions



1) Mr. ‘X’ is a member of a chit group of Rs. 1,00,000/-. The group comprises of 40
members and 40 installments equally divided into Rs. 2.500/- per month.
2) Mr. ‘X’ is in need of money and presents himself at the chit auction. He makes a
bid to draw the chit. He successfully draws the chit at 30% discount.
3) Mr. ‘X’ makes his draw in second month of the chit.

Mr. ‘X’ is paid Rs. 70,000/- by the foreman. Mr. ‘X’ having foregone Rs. 30,000/- and
thus his interest rate would be

(30,000 / 38 months / 70,000) x 100
=1.13% per month.

i.e. 13.50% per annum.
(Note: 38 months, because he draws the chit in the second month, and the chit group is
for 40 months, thus the period for which he actually uses the money and calculated
interest is 38 months).

However this 13.50% is not the correct interest rate that Mr. ‘X’ pays because he also
enjoys the other benefits such as dividends and taxation benefits which reduces interest
burden.

The company records reveal that on an average every member of a Rs. 1,00,000 chit
group gets a total dividend of Rs. 15,000/- during that chit group. Thus Rs. 15,000/- being
an income to Mr. ‘X’ reduces his effective interest burden.

Another important aspect reducing the interest burden would be the Income Tax benefit.
As already calculated let us say Mr. ‘X’ earns a tax benefit of Rs. 9,000/-. Thus the
effective discounted amount of Mr. ‘X’ would be

30,000 (The actual 30% foregone by Mr. ‘X’)



- 15,000 (Dividend earned by him)
_______
15,000
- 9,000 (Being income tax benefit)
________
6,000 (This amount is the actual discount or amount foregone by Mr.
‘X’)
Thus, considering this Rs. 6,000/- as the foregone amount the interest rate applicable to
Mr. ‘X’ would be as follows:
(6,000 / 38 months / 94,000) x 100

=0.167% per month.
i.e. 2.01% per annum.
The effective rate of interest applicable to Mr. ‘X’ is 2.01% per annum.
Example 2:

Assumptions:

1) Mr. ‘X’ is a member of a chit group of Rs. 1,00,000/-. The group comprises of 40
members and 40 installments equally divided into Rs. 2,500/- per month.
2) Mr. ‘X’ this time makes a draw in the end of the chit group.

Mr. ‘X’ who makes a draw in the last would have to forego only 5% of the chit amount
being the company commission.

The net amount that Mr. ‘X’ would get is Rs. 95,000/-.

Mr. ‘X’ who has right since the beginning being paying his installments has been earning
sufficient dividends on those also.



As the company records reveal that a chit subscriber of Rs. 1,00,000/- group with 40
installments earn a dividend of Rs. 15,000/-. Mr. ‘X’ is actually earning an interest on his
every installments being

15,000 / 40 =375. (This is the monthly dividend he receives).

Thus the interest he is earning on every installment is

(375 / 2500) x 100

=15%.

This reveals that even if Mr. ‘X’ makes a draw in the last he is actually not losing any
interest but instead earning an interest of 15% every month on his installment that being
the total dividend money he earns through the chit group.

Table Showing Comparison.

Particulars (source) Interest Rate Charged
Bank overdraft 16.5%
Cash Credit. 16%
Discounting of Bills 18%-20%
Term loan 15%-16%
Indigenous Money Lenders 18%
Trade Credit. 24%



DISTRIBUTION OF SURPLUS / DIVIDEND

Chit funds is the only Financial Institution wherein a borrower enjoys the benefit of profit
from his lender. Any person making an investment in chit funds is said to be making his
best investment. Even the amount which he foregoes as a discount is against distributed
to him as dividend.

When a chit auction is conducted the members bid from 5% upto 30% of the chit amount.
5% being company commission and 30% being the upper ceiling limit as per the Chit
Fund Act 1982.

Example:

Let us take a Rs. 1,00,000/- chit group of 40 members and 40 installments of Rs. 2,500/-
each. Mr. ‘X’ draws the chit in the second month at a discount of 30%. Thus Mr. ‘X’
discounts Rs. 30,000/- from Rs. 1,00,000/- and takes only Rs. 70,000/-



Out of this Rs. 30,000/- the company deducts its 5% commission being Rs. 5,000/-. Thus
the net surplus of the chit being Rs. 25,000/-. This Rs. 25,000/- is distributed equally
among all the 40 subscribers at Rs. 625/- per member.

The dividend can be either paid in cash or can be adjusted against the next installment
due from all the subscribers that is Rs. 2,500-Rs. 625 = Rs. 1875.

Thus Rs. 1875 is the net amount payable on next installment.

THE CHIT FUNDS ACT 1982.

TO PROVIDE FOR THE REGULATION OF CHIT FUNDS AND FOR
MATTERS CONNECTED THEREWITH.

A. PRELIMINARY

1) SHORT TITLE, EXTENT AND COMMENCEMENT

1. This Act may be called the Chit Funds Act, 1982.
2. It extends to the whole of India except the State of Jammu and Kashmir.
3. It shall come into force on such date as the Central Government may by
notification in the official Gazette, appoint, and different dates may be appointed
for different states.



2) DEFINITION:

a) “Approved Bank” means the State Bank of India constituted under Sec 3 of State
Bank of India Act – 1955 or a Subsidiary Bank constituted under Sec 3 of the SBI
(Subsidiary) Act 1959, or a corresponding New Bank constituted under Sec 3 of
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 or a
Regional Rural Bank established under Sec 5 of Regional Rural Bank Act 1976 or
a corresponding New Bank constituted under Sec 3 of Banking Companies
(Acquisition and Transfer of Undertakings) Act 1980 or Banking Company
defined under clause (C) of Sec 5 of Banking Regulation Act 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.

b) “Chit” means a transaction whether called chit, chit fund, chitty, kuri 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 amount 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
defined in the chit agreement, be entitled to the prize amount.

c) “Chit Agreement” means the document containing the articles of agreement
between the foreman and the subscribers relating to the chit.

d) “Chit Amount” means the sum total of the subscription payable by all the
subscribers for any installments of a chit without any deduction of discount or
otherwise.



e) “Chit Business” means the Business of conducting a chit.

f) “Defaulting Subscriber” means a subscriber who has defaulted in the payment of
subscription due in accordance with the terms of the chit agreement.

g) “Discount” means the sum of money (or the Quantity of grain) which a prized
subscriber is, under the terms of the chit agreement required to forego and which
is set apart under the said agreement to meet the expenses of running the chit or
for distribution among the subscribers or both.

h) “Dividend” means the share of the subscriber in the amount of discount available
under the chit agreement for rateable distribution among the subscribers at each
installment of the chit.

i) “Draw” means the manner specified in the chit agreement for the purpose of
ascertaining the prized subscriber at any installment of the chit.

j) “Foreman” means the person who under this chit agreement is responsible for the
conduct of the chit and includes any person discharging the functions of the
foreman.
k) “Prize Amount” means the difference between the chit amount and the discount
and in case of a fraction of a ticket means the difference between the chit amount
and the discount proportionate to the fraction of the ticket.

l) “Registrar” means the Registrar of Chits appointed under Sec 61 and includes an
Additional, a Joint, Deputy or an Assistant Registrar appointed under this section.



m) “Subscriber” includes a person who holds a fraction of a ticket and also a
transferee of a ticket or fraction thereof by assignment in writing or by operation
of law.

n) “Ticket” means the share of a subscriber in a chit. All to override other laws,
memorandum, articles etc.

B. REGISTRATION OF CHITS, COMMENCEMENT AND CONDUCT OF CHIT
BUSINESS

Sec 4:- PROHIBITION OF CHITS NOT SANCTIONED OR REGISTERED
UNDER THE ACT.

4(1) : No chit shall be commenced or conducted without obtaining the previous sanction
of the State Government within whose jurisdiction the chit is to be commenced or
conducted or of such officer as may be empowered by that Government in this behalf,
and unless the chit is registered in that state.



Sec 5:- PROHIBITION OF INVITATION FOR SUBSCRIPTIONS EXCEPT
UNDER CERTAIN CONDITIONS.

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 sec 4 has been obtained and the particulars of such sanction.

Sec 6:- FORM OF CHIT AGREEMENT

1) Every Chit agreement shall be in triplicate, and shall be signed by each of
the subscriber or by any person authorized by him in writing and the
foreman and attested by atleast two witnesses, and it shall contain the
following particulars.
a) Full name and address of every subscriber.
b) The number of tickets including the fraction of a ticket held by each
subscriber.
c) The number of installments, amount payable at every installment, interest,
penalty.

d) Probable date of commencement and duration of the chit.
e) Manner of ascertaining the prized subscriber.
f) The maximum amount of discount which the prized subscriber has to
forego (The discounted amount cannot exceed 30%) Sec 6(3).
g) The mode and proportion in which the discount amount would be
distributed by way of dividend.
h) The name of the approved bank in which chit money shall be deposited by
the foreman.



i) The consequences to which a non prized subscriber or prized subscriber of
the foreman shall be liable in case of violation of any of the provisions of
the chit agreement.
j) The nature and particulars of the security to be offered by the foreman.

6(2) : The duration of a chit shall not extend beyond a period of 5 years from the date of
commencement.

Provided the State Government may permit the duration of a chit up to a period of 10
years as per satisfaction of the necessary provision.

Sec 7 :- FILING OF CHIT AGREEMENT.

1) Every chit agreement shall be filed in triplicate by the foreman to the Registrar
(JRC).
2) The registrar shall retain one copy and return the duplicates to the foreman with
an endorsement that the chit agreement is registered.

The registrar may refuse if
a) The security is insufficient.
b) The foreman has been convicted of any offence of this Act or any other Act
regulating Chit Business.

c) Foreman has defaulted in payment of fees or filing of sanction.
d) That the foreman has been convicted of any offence involving moral turpitude and
sentence to imprisonment for any such offence.

Sec 8 :- MINIMUM CAPITAL REQUIREMENTS FOR COMMENCEMENT OF
A CHIT AND CREATION OF A RESERVE FUND, BY A COMPANY.



1) A company shall not commence or carry on chit business unless it has a paid up
capital of not less than 1 lakh rupees (not withstanding the provisions of Sec 1 of
Companies Act 1956).
2) Every company with its paid up capital being less than 1 lakh has to increase its
paid up capital upto 1 lakh with in 3 years from the such commencement.
3) Every company carrying on chit business shall create and maintain a Reserve
Fund and transfer 10% of the profit as per the profit and loss account before any
dividend.

Sec 9 :- COMMENCEMENT OF CHIT:

1) After all the tickets are fully subscribed the foreman files a declaration with the
registrar.
2) Registrar after satisfying himself with the formalities shall issue “Certificate of
Commencement” to the foreman.

Sec 10 :- COPIES OF CHIT AGREEMENT TO BE GIVEN TO SUBSCRIBERS
1) The foreman shall furnish the Certificate of Commencement as per sec 9(2) to all
the subscribers before 1st draw.
2) The foreman has to file to the registrar that the provision of Sec 10(1) have been
complied.

Sec 11 :- USE OF WORDS “CHIT”, “CHIT FUND”, “CHITTY” OR “KURI”

1) The person carrying on such business shall include any of above terms.

Sec 12 :- PROHIBITION OF TRANSACTING BUSINESS OTHER THAN CHIT
BUSINESS BY A COMPANY.



1) No company carrying on chit business shall conduct any other business except
under permission from State Government.
2) Any company carrying on any other business, it shall be wound up with in 3 years
of commencement of this Act.

Sec 13 :- AGGREGATE AMOUNT OF CHITS

1) Foreman other than AOI, Co, Co-op society shall conduct chit business, the
aggregate amount of which exceeds (25000) Twenty Five Thousand Rupees. (As
per the latest amendments this limit has been enhanced to Rs. 1,00,000/- incase of
individuals).
2) Where the foreman is a firm or other association of individuals, the aggregate chit
amount of the chits conducted by the firm or other association shall not at any
time exceed.
a) Where the number of partners of the firm or the individuals constituting the
association is not less than four, a sum of rupees one lakh; (This has been
amended to Rs. 1,00,000/- per partner upto a maximum of Rs. 6,00,000/-).
b) In any, other case, a sum calculated on the basis of twenty five thousand rupees
with respect to each such partner or individual.

3) Where the foreman is a company or co-operative society, the aggregate chit
amount of the chits conducted by it shall not at any time exceed ten times the net
owned funds of the company or the co-operative society, as the case may be.

Sec 14 :- UTILISATION OF FUNDS

1) A foreman cannot utilize money collected in respect of chit business except for
a) Carrying out Chit Business.
b) Giving loans and advances to non prized subscribers on appropriate securities.



c) Investing in trustee securities. (Indian Trusts Act 1982 Sec 2).
d) Deposits with approved banks mentioned in the Chit agreement. (Money from
chit business does not include commission or remuneration payable to such
person or interest or penalty received).

Sec 15 :- ALTERATION OF CHIT AGREEMENT.

It can be added, altered, cancelled with consent in writing of the foreman and all
subscribers.

Sec 16 :- DATE, TIME AND PLACE OF CONDUCTING CHIT

1) Every draw shall be conducted on such a date, time and at a place as
mentioned in chit agreement or as per notice issued by foreman to the
subscribers.
2) Every draw shall be conducted in the presence of atleast 2 subscribers in
the manner prescribed.
3) Where any draw was not conducted, registrar would direct the draw as the
case may be.

Sec 17 :- MINUTES OF PROCEEDINGS

1) The minutes of proceedings of a draw shall be entered in a book after the end of
such draw and signed by the foreman, prized subscriber and any two subscriber as
per 16(2) or as per provisions of 16(3).

2) The minutes shall clearly state
a) Date and hour when proceedings started and ended and the place of draw.
b) The number of and amount of installment.
c) Name of prized subscribers and other subscribers.



d) Amount of discount.

Sec 18 :- COPIES OF MINUTES TO BE FILED WITH THE REGISTRAR

A true copy of the minutes of the proceedings of every draw certified as such by the
foreman shall be filed by the foreman with the Registrar within twenty one days from the
date of draw to which it relates.

C. RIGHTS AND DUTIES OF A FOREMAN

Sec 20: SECURITY TO BE GIVEN BY FOREMAN



1) For the purpose of conduct of the chit every foreman shall before applying
for a previous sanction
a) Deposit in an approved bank an amount equal to chit amount in the name
of Registrar (as per the latest amendment 50% can be provided as Fixed
Deposit and the rest 50% as Bank guarantee).
b) Transfer Government securities in face value / market value (which ever is
less) of not less than one and a half times the chit amount in favour of the
Registrar.
2) A separate security has to be provided for every chit.
3) The registrar at any time during the currency of chit, permit the
substitution of chit.
4) The security given shall not be liable to be attached in execution of a
degrees or otherwise until the chit is terminated and claims of all the
subscribers are fully satisfied.

Sec 21 : RIGHTS OF A FOREMAN

1) The foreman is entitled.
a) To receive the 1st installment of the chit without deduction of the discount,
provided he is a subscriber to that chit agreement.
b) To such amount not exceeding 5% of the chit amount by way of commission,
remuneration or for meeting the expenses of running the chits.
c) To interest and penalty payable to the foreman as per the chit agreement.
d) To receive and realize all subscriptions from the subscribers and to distribute the
prize amounts to the prized subscribers.

e) To demand sufficient security from any prized subscriber for the payment of
future subscriptions payable by him.
f) To substitute subscribers in place of defaulting subscribers and



g) To do all other acts that may be necessary for the due and proper conduct of the
chit.

Sec 22: DUTIES OF FOREMAN

1) The foreman shall pay the prized subscriber only on sufficient security for
payment of future subscriptions.
2) In case if draw remains unpaid then such amount shall deposited in a separate
account with an approved bank before next draw and intimate the registrar and all
other subscribers.
3) The foreman shall not appropriate to himself any amount in excess of entitled
under clause (b) or (c) or 21(1).
4) The foreman shall distribute the dividend either as cash, grains or by way of
adjustment towards the subscriptions payable towards next installments.

Sec 23 : BOOKS, RECORDS, ETC., TO BE KEPT BY FOREMAN

The foreman shall at his Registered office, or his prinicipal place of business or nay
branch office, sub office, or office in any other state maintain

a) a registrar containing
i. The names and full particulars of the subscribers.
ii. The date on which the subscribers signed the chit agreement.
iii. In case of an assignment of a ticket by a subscriber, name and address of such
assignee.

b) A book containing the minutes of the proceedings of each draw.



c) A ledger containing
i. Amount paid by subscribers in each chit and dates of such payments.
ii. Amount paid by prized subscribers and dates of such payments.
iii. Deposits with approved banks if any.

d) Register showing the amounts deposited in approved Banks as per provisions of
this act.

Sec 24 : BALANCE SHEET

The foreman shall prepare a Balance Sheet and a Profit and Loss Account at the end of
such financial or calendar year audited by an approved auditor as per the provisions of
Company’s Act of 1956.

Sec 25 : LIABILITY OF FOREMAN TO SUBSCRIBERS

1) Every foreman shall be liable to account to the subscriber for amounts due to
them.
2) Where there are more than one foreman in a chit, each one of them jointly and
severally and if the foreman is a firm or other association of individuals, each one
of partners or individuals thereof jointly and severally and if the foreman is a
company, the company as such, shall be liable to the subscribers in respect of the
obligations arising out of the chit.



D. RIGHTS AND DUTIES OF NON PRIZED SUBSCRIBERS

Sec 27: NON PRIZED SUBSCRIBERS TO PAY SUBSCRIPTIONS AND OBTAIN
RECEIPTS.

Every non prized subscriber shall pay his subscription within the due date for each draw
and also obtain receipts for such payments.

Sec 28 : REMOVAL OF DEFAULTING SUBSCRIBERS

In case of default by any subscriber on the payment of subscription amount, he is liable to
have his name removed from the list and a written notice is issued by the foreman to such
subscriber within 14 days of such removal.



E. RIGHTS AND DUTIES OF PRIZED SUBSCRIBERS

Sec 31 : PRIZED SUBSCRIBERS TO FURNISH SECURITY

Every prized subscriber shall furnish security for the future subscriptions amount payable
to the satisfaction of the Registrar.

Sec 32 : PRIZED SUBSCRIBER TO PAY SUBSCRIPTIONS REGULARLY

Every prized subscriber should pay his subscriptions promptly and on his failure he shall
be liable to make consolidated payment of all future subscriptions forthwith.

Sec 33 : FOREMAN TO DEMAND FUTURE SUBSCRIPTIONS BY WRITTEN
NOTICE.

1) A foreman shall not be entitled to claim a consolidated payment from a
defaulting prized subscriber.
2) In case of any dispute, the adjucating authority would make the defaulting
customer to pay al due subscriptions, interest, penalties and legal charges
as claimed by the foreman and also collect all future subscription as a
consolidated amount with interest as case may be.
3) Any person who holds any interest in the property furnished as security or
part there of, shall be entitled to make payments under sub sec (2).
4) A consolidated payment for future subscription shall be deposited in an
approved bank mentioned in the chit agreement and such amount shall be
used only for payment of such future subscriptions.



F. TRANSFERS

Sec 34 : RESTRICTIONS ON TRANSER OF RIGHTS OF FOREMAN

1) The right of foreman to collect subscriptions from prized subscribers shall
not be transferred, without the previous sanction in writing by Registrar.

Sec 35 : TRANSFER OF NON PRIZED SUBSCRIBERS RIGHTS TO BE IN
WRITING

Transfer of a non prized subscriber rights in a chit agreement shall be in writing duly
signed and attested by 2 witnesses and shall be filed with the foreman.

Sec 36 : RECOGNITION OF TRANSFER BY FOREMAN

Every transfer shall within 14 days from the date of proposal for such transfer be
recognized by the foreman.



G. MEETINGS OF GENERAL BODY OF SUBSCRIBERS

Sec 38 : MEETINGS OF GENERAL BODY OF SUBSCRIBERS

1) The foreman may on his own motion, convene a special meeting of the
General body of Subscribers for considering any proposal to pass a special
resolution.
2) The foreman shall convene the meeting on requisition of not less than 25%
of the non prized and unpaid prized subscribers. The meeting shall be
convened within 30 days of date of receipt of requisition. If the foreman
fails then such group of subscribers can approach the Registrar.
3) The registrar shall within 21 days of notice under Sub Sec (2), direct the
convening of a Special Meeting.



H. TERMINATION OF CHITS

Sec 39 : PROVISION FOR CONTINUATION OF CHITS IN CERTAIN CASES

1) Where foreman dies, becomes of unsound mind or in otherwise
incapacitated the chit may continue in accordance with the
provisions of the chit agreement.

Sec 40 : TERMINATION OF CHITS

A chit shall be deemed to have been terminated

a) When the period specified in chit agreement has expired provided the payment
dues to all the subscribers has been completed or
b) When all the non prized and unpaid subscribers and the foreman consent in
writing to the termination of the chit or
c) When a foreman dies, becomes insecure or is otherwise incapacitated and the chit
is not continued as per provisions of chit agreement.



I. INSPECTION OF DOCUMENTS

Sec 44 : FOREMAN TO ALLOW CERTAIN SUBSCRIBERS TO INSPECT CHIT
RECORDS.

The foreman shall allow all non prized subscribers, unpaid subscribers and also prized
subscribers to inspect the books of account on all the dates of draw or as provided in the
agreement. They shall be allowed to check securities furnished by prized subscriber, all
chit records including books of accounts, pass books, Balance Sheets, Profit and Loss
Account.

Sec 45 : PRESERVATION OF CHIT RECORDS BY FOREMAN

All the records pertaining to a chit agreement shall be maintained for 8 years.

Sec 46 : INSPECTION OF CHIT BOOKS AND RECORDS BY REGISTRAR.

1) The registrar or a person appointed by State Government may inspect chit
books or all records of a chit on any working day at the premises of the
foreman with or without any notice.
2) The Registrar or any person appointed by State Government issue a 7 days
notice to a foreman for the submission of all chit records.
3) On the finding of any defects, the registrar or office may order the
foreman to rectify such errors giving certain period of time.



4) Every foreman shall be bound to comply with directions contained in an
order made under Sub Sec (3).

Sec 47 : POWER OF RBI TO INSPECT CHIT BOOKS AND RECORDS
1) The power of RBI to inspect chit books and records remain same as stated in Sec
45 N of RBI Act 1934.
2) The RBI if it considers necessary may forward a report on the inspection of chit
books and records of a foreman for taking necessary action.
3) Any foreman is bound to comply with the report received from RBI, and even
make periodical reports to RBI as may be needed.
4) The RBI may forward a report to State Government or Registrar to inspect the
chit books and records.



J. WINIDING UP OF CHITS

Sec 48 : CIRCUMSTANCES UNDER WHICH CHITS MAY BE WOUND UP

A chit may be wound up by the Registrar either on his such motion or on an application
made by any non prized or unpaid prized subscriber.

a) If the chit has terminated under clause (c) of sec 40 or
b) If the foreman commits any such act in respect of the security
specified in Sec 20 as is calculated to impair materially the
nature of the security or the value thereof or
c) If the foreman fails to deposit any amount required to be
deposited under any of the provisions of this Act or
d) If it is proved to the satisfaction of the Registrar that the foreman
is unable to pay the amounts due to the subscriber or
e) If the order issued by Registrar as foreman has not been
complied with for payments to any subscriber or
f) If it is proved that there has been fraud or collision on part of
foreman in the matter of taking securities from the prized
subscriber or
g) If the foreman has appropriated amount to prized subscribers
without appropriate securities.



h) If registrar is satisfied that the affairs of the chit are being
conducted in a manner prejudicial to the interests of the
subscribers or
i) If it is just and equitable that the chit should be wound up.

K. APPOINTMENT OF OFFICES AND LEVY OF FEES

Sec 61 : APPOINTMENT OF REGISTRAR AND OTHER OFFICERS

1) The State Government may by notification in the Official Gazette appoint f
Registrar of Chits and as many Additional, Joint, Dy. And Assistant Registrars

L. DISPUTES AND ARBITRATION

Sec 64 : DISPUTES RELATING TO CHIT BUSINESS

Any disputes relating to the management of Chit business, shall be referred to any of the
parties to the dispute, to the Registrar for arbitration, if each party thereto is of the
following (non withstanding any other law for the time being in force)

a) A foreman, prized subscribers, non prized subscriber defaulting
subscriber, past subscribe or a person claiming through a subscriber or a
deceased subscriber to a chit.
b) A surety of a subscriber, past subscriber or a deceased subscriber



ii. a claim by or against a foreman or any debt or demand due to him
from a subscriber or due from him to a subscriber, past subscriber or
the nominee, heir or legal representative of a deceased subscriber
whether such debt or demand is admitted or not.
iii. A claim by a surety for any sum or demand due to him from the
principal borrower in respect of a loan by a foreman and recovered
from the surety occurring to the default of the principal borrower,
whether such sum or demand is admitted or not, and
iv. A refusal or failure by a subscriber, past subscriber or the nominee
heir or legal representation of a deceased subscriber to deliver
possession to a foreman of land or any other Asset resumed by him for
breach of condition of the Assignment.

2) Where a question arises whether the matter referred to the Registrar by any one of
the parties is a dispute or not, shall be decided by the Registrar whose decision
shall be final.
3) No civil court shall have jurisdiction to entertain any suit in respect of any dispute
as referred to in Sub Sec 1.

Sec 66 : SETTLEMENT OF DISPUTES

1) If the Registrar is satisfied that the matter referred to him is within the meaning of
Sec 64, he shall settle the dispute himself or refer it to a person appointed by him
(so called nominee) subject to the rules of this Act.
2) Where any dispute is referred to a nominee, the Registrar at any time, for reasons
recorded by him in writing, withdraw such dispute from the nominee and settle it
himself or appoint any other nominee.

Sec 67 : PROCEDURES FOR SETTLEMENT OF DISPUTES AND POWERS OF
REGISTRAR OR NOMINEE



2) A Registrar or a Nominee having a dispute under Sec 66 shall in addition to the
powers conferred on him under that section, have the same powers as are vested
in a Civil Court while trying a suit under the Code of Civil Procedures 1908 (5 of
1908) in respect of the following matters namely :
a) Summoning and enforcing the attendance of persons and examining them
on oath.
b) Requiring the discovery and inspection of documents.
c) Receiving evidence on affidavits.
d) Requisitioning any public record or copies there of from any count or
office.
e) Issuing commissions for the examinations of witnesses or documents.
f) Any other matter which may be prescribed.

3) Except with the permission of the Registrar or the Nominee, no party shall be
represented at the hearing of any dispute by a legal practitioner.
4)
A) If any person whether he is a subscriber or not, has acquired any interest in the
property of the person who is a party to the dispute and the registrar is satisfied by
above act, the registrar may give an order which is binding on that person who has
acquired the interest in the property, in the manner as if he were the original party
to the dispute.
B) Where a dispute has been referred in the name of a wrong person, or where all the
necessary parties have not been included, the Registrar or the nominee may if he
is satisfied that it was due to a genuine mistake, order any other person to be
substituted or added as parties to the dispute at any stage of hearing of the dispute
on such terms as he thinks fit.
C) The Registrar or Nominee may at any stage of proceedings either upon or without
an application of either party and on such terms as may appear to the Registrar or



Nominee to be just may order that the name of any party improperly joined be
struck off.
D) The person who is a party to the dispute and entitled to more than one relief in
respect of the same cause of action may claim all or any such relief, but if he
wants to claim any such relief, but he shall not be entitled to claim that relief,
except with the leave of the Registrar or the Nominee.

M. MISCELLANEOUS

Sec 73 : ADVISORY ROLE OF RBI

The Reserve Bank may tender to any State Government such advice on Questions of
policy with respect to this Act as it thinks fit either on its own motion or on a request
made by the State Government.



STATEMENT OF PROBLEM

Chit funds in an age old unorganized non banking financial institution over the years
both the Government and players in this industry have tried to organize this important
institution which has been contributing significantly to the economic development of
the country.

Both the foreman and subscribers were incurring losses due to unorganisation and
lack of state control over the chit business.

The Chit Funds Act 1982, was a major step towards organizing this activity. The
efforts in this direction have however not been totally successful. The chit fund
operators still face problems as to the default by subscribers on payment, insolvency
of subscribers and fraudulent activities of the subscriber.



This project study is based on the pronounce of chit industry, Profitability in investing
in Chit funds and an attempt is made to find out the implications of running the chit
funds and offer suggestions.

SCOPE OF THE STUDY

The project report covers the Chit Fund Act 1982, the influencing authorities of chit
funds, a Company Profiles, an Analysis of the data collected from 50 respondents and
their views on chit business and chit funds as a source of finance. The Analysis and
evaluation of responses about the risks, advantages of the role of chit funds in the
economic development of the country.

A reader of this project report would get an exhaustive information on the operation
of chit business, the legal framework binding chit operators with reference to the
PCPL.



OBJECTIVES OF THE STUDY

The general objectives of this project is to present a consolidated report on the
“Profitability in investing in Chit funds of the Country with specific reference to
‘PCPL’”.

The other objectives are :

a) The functioning of chit funds.
b) The legal framework governing the chit fund industry.
c) The member profile required for membership of PCPL.
d) To know the attitude of the customers about investing in the chit funds.
e) Customer satisfaction measurement of PCPL.

Research Design

a) Type of Research Study: A social research on Financial activity for
economic development using data collected from Respondents as primary data
and theoretical data as secondary data.
b) Tool for Collection Data: Structured Questionnaire both for the members of
the company and the company.
c) Sample Design: Selected Targeted Company, i.e., PCPL and 50 Respondents
selected as Random Sample Method.
d) Method of Collecting Data: Interview method and investigative method.
e) Method of Analysis: Quantitative and Descriptive Analysis.



The findings are recorded based on evaluation of Data, the evaluation is done for each
data and conclusion is based on the evaluation of the data.

Suggestions are given at the end of the project study.

Limitations

The project being for educational purpose, was restricted to the study of one chit fund
operator being PCPL. Since the study was restricted to one chit fund operator, the
study cannot be generalized. Lack of availability of theoretical information on chit
funds was one of the major constraints faced. Due to the constraints of time and
money, the number of respondents has been restricted to 50 members only. The
information has been collected from the Chit Fund Act, Company Profile and
Respondents only.



COMPANY PROFILE

Panchajanya Chits Pvt. Ltd (PCPL) is the 1 st registered chit funds co., in the State of
Karnataka, registered under the Chit Funds Act 1982.

The company being registered under the Companies Act 1956, began its operations in
1984. PCPL is the 1st licensed chit operators coming under the preview of Chit Fund
Act, RBI and Registrars of Company.



The company began its operation with a meager turnover of Rs. 32 lakh by the end of
1984, but with its constant dedication, hardwork and effort towards the growth of chit
industry and business community it has reached a record high of Rs. 1200 crores in
the year 1998-99, showing a average growth rate of 235% every year for the past 16
years.

The company has a member profile of more than 250 registered business class
customers and 100 employed customers participating actively in its chit programmes /
schemes.

Presently the company offers the following chit schemes.

Members
Rs. 1 lakh 40 40 2500
Rs. 5 lakhs 50 50 10000
Rs. 10 lakhs 25 25 40000
Rs. 25 lakhs 25 25 100000

In order to meet the growing demand of its clientele, the company proposes to start
the full chit schemes.

Members Rs.
Rs. 50 lakhs 25 25 Rs. 2,00,000
Rs. 75 lakhs 25 25 Rs. 3,00,000
Rs. 100 lakhs 25 25 Rs. 4,00,000

The management team comprises of Board of Directors, known of their commercial
acumen, who plan the company’s long term strategies and implement them in order to



receive results. The company has dedicated staff at all levels working in a smooth and
efficient manner.

MISSION

“Panchajanya endeavors to reach the zenith of business excellence through value – based
service and uncompromising quality there by ensuring complete customer satisfaction”

OBJECTIVES

 To develop business models and strategies that maximizes customers and
employee value.
 To be a forerunner in the use of Chit solutions.



 To ensure service norms and standard systems, on dot and round the clock
support.
 Develop and retain key resource and capabilities.
 To evolve continuously servicing organizations.

BOARD OF DIRECTORS

01 D. Ramachandra Chairman.
02 Prashanth R. Dhondale Managing Director.

PROMOTERS:-

Mr. D. Ramachandra, Chairman.

Mr. D. Ramachandra, 58 years, studied in Bangalore University. He worked in the
family’s retail cloth stores and readymade garment industry. He started an Industrial
Management Consultancy services in the year 1976 to 1984. He had exhaustive
knowledge of Industry, which resulted into the preparation of project reports, market



surveys and excellent contact and repo with banks and financial institutions and during
his stinct as consultant, he prepared around 300 project reports and innumerous
representations of industrialist before financial institutions. Soon it proved to be a domain
for new business learning and contacts. In 1984 he promoted Panchajanya Chits (P) Ltd.
As its founder Chairman and Managing Director he made a humble beginning in the Chit
industry. Panchajanya Chits scaled new heights year after year and has to its distinction
as the first licensed chit operator in the state, first to promote and operate Rs. 1 lakh, Rs.
2 lakhs, Rs. 3 lakhs, Rs. 5 lakhs, Rs. 10 lakhs and Rs. 25 lakhs chit groups in the state of
Karnataka. He became the President of Karnataka Chitsters Association, and in the year
1999 he was elected as the President of All India Association of Chit Funds, New Delhi.
He participated in number of meetings, seminars and workshops on Banking, Finance and
Chit Industry. Presently he is the Chairman of Banking and Finance and Chit Industry.
Presently he is the Chairman of Banking and Finance Committee with various
educational, religious and social organizations and has been an active member of many
institutions, clubs including the Rotary International.

Sri. Prashanth R. Dhondale, Managing Director.

Mr. Prashanth R. Dhondale, 24 years, is the son of Mr. D. Ramachandra, the founder of
Panchajanya Chits. He studied as a commerce student from the University of Bangalore.
He was associated with Chit Industry from the age of his teens, who was virtually
brought up in and among the Chit Industry. His penchant for Chit Industry resulted into
his choosing the same as a career. His contact with Chit Industry began as early as 18
years and he has very wide knowledge of chits under the tutege of his illustrious father



and is a veteran in solving all problems concerning chits. His yound hunger for growth
and excellence has led the company at an astounding growth rate and he is instrumental
in establishing alliances with top notch Captains of Industry, Trade and Commerce. He
heads the Corporate office of the company, which is equipped with all modern business
equipment, fully computerized and has an air conditioned ambience at Madhav Nagar,
Race course Road, Bangalore 560001. He leads a highly efficient and result oriented
team of professional executives, who are instrumental in promotion and operation of chit
groups worth Rs. 3790 lakhs in a short span of 36 months, which is a record in the field
of Chit Industry. He is connected with many organizations, institutes and clubs. He is
also a good classical singer.

The company has its registered office at Chickpet but with a objective to serve its
customers more effective and meet the growth of the company, a new corporate office
was set up in Madhav Nagar which began its operation in June 1997.

ANALYSIS AND EVALUATION OF DATA

Chit Funds are age old conventional financial institution in India. But of late chit funds
have taken the role of a organized system. However it could not be classified as Banking
System nor lending system, but it is having its own unique financial operations. In view



of the very high risk factors both for the members and for the people who conduct chit
funds. Many normal educated persons who are not investing in this financial institutions.
Only those who had (immediate need for) unexpected need for finance who were
engaged in risky business and those who did not want to invest in Banking institutions,
those who wanted high yields were investing in Chit funds. Persons with (high) sound
financial background, those who had control in their own local areas were running chit
funds in unorganized manner. There were incidents of incurring loss, both by the
members and the chit fund owners, but it was a fact that very heavy turnover was carried
out throughout country especially in Rural and sub urban areas. Money was not
accounted for and there was not control over the chit fund activity.

Chit Funds have contributed widely for economic development because most of the
members were those who were engaged in one or other kind of business and the money
was doubled. Considering the importance of Chit Funds in the company activity, the
Government of India enacted the Chit Fund act in 1982 to control and regulate the chit
funds. It ensured the state control and the control by RBI on chit funds activities and now
chit funds has become one of the recognized financial institutions in India. The chit fund
companies have been registered under companies act 1956, with their Articles of
Association and Memorandum of Association.

Upto this day, the searches made on various studies pertaining to finance have revealed
that no project study was made on the Profitability in investing in Chit Funds. Therefore a
case study is undertaken to conduct a study with the objective of understanding the
intrigues of running a chit fund company and the expectations of members.

Among many registered firms dealing with Chit funds in Karnataka, the Panchajanya
Chits Pvt. Ltd, is the one which has become popular and therefore this study is with
particular reference to Panchajanya Chits Pvt Ltd.



The data has been collected from 50 respondents who are the members of PCPL. A
structured Questionnaire was used to collect the data which is placed at Annexure A.
Each data is tabled and analyzed.

Analysis

Table 1 : Indicates the name profile of the respondents



Particulars No. of Respondents Percentage
Name Given 48 96
Name not Given 02 04
Total 50 100

4%

Name given
Name not given

96%

From the above table and graph, 48 persons has given their name and only 2 persons have
not given their name.

Inference:

Name indicates the identity of the respondents and his opinion in furnishing the data,
which could be relied upon.

It is seen from the above table and graph that 96% of the respondents have given their
name and therefore it is evident that they are totally willing to participate in the project
study. Hence, the data supplied by them can be reliable.

Table 2 : Indicates the age profile of the respondents.



Particulars No. of respondents Percentage
20 – 25 Years 2 4
25 – 35 Years 16 32
35 – 45 Years 22 44
45 & Above 10 20

Age Profile
No. of respondents

25 22
20 16
15 10 Series1
10
5 2
0
20 - 25 25- 35 35-45 45 &
above
Years

Inference:

From the above its clearly shows that the respondents between the age group of 35 – 45
Years are majority and hence it shows that they are all experienced in their respective
fields and have good decision make abilities in investing in chit funds.

Table 3 : Indicates the qualification profile of the respondents.



Particulars No. of respondents Percentage
Undergraduate 08 16
Graduate 32 64
Post Graduate 10 20
Total 50 100

Qualification Profile

20% 16%

Under Graduate
Graduate
Post Graduate

64%

Inference:

Educational qualification makes respondents to take the right decision in investments.

From the above, it is presumed that respondents will have clear thinking about the
advantages and care to be taken in chit fund investments.

Table 4 : Indicates the occupation profile of the respondents.

Particulars No. of Respondents Percentage



Salary Earners 5 10
Business 37 74
Others 8 16
Total 50 100

Occupation Profile

16% 10%

Salary Earners
Business
Others

74%

Inference:

From the above its clear that most of the respondents are engaged in business and
therefore they need money for cash flow to carry out the business as working capital.
They can take a decision when to bid the amount from chit unlike applying to the bank
and rising the loan where securities issues arise.

Table 5 : Indicates the annual income profile of the respondents.



5a. Salary Earners

Income No of Respondents Percentage
2 – 3 Lakhs 2 40
3 – 4 Lakhs 2 40
More than 4 Lakhs 1 20
Total 05 100

Income Level

20%

40% 2- 3 lakhs
3- 4 lakhs
More than 4 Lakhs

40%

Inference:

Respondents having considerable amount of income to over come the risk and invest in
chit funds.



5b. Businessmen’s

Turnover No. of respondents Percentage
Up to 25 Lakhs 08 22
25 – 50 Lakhs 13 35
50 – 100 Lakhs 12 32
Above 1 Crore 04 11
Total 37 100

Turnover Level

11%
22%
Upto 25 Lakhs
25-50 Lakhs
32% 50- 100 Lakhs
Above 1 Crore
35%

Inference:

Every business must have a annual turnover, which decides the stability and growth of
business. This decides the profit and investment pattern.

From above it is presumed that the respondents have considerable amount of turnover to
over come the risk and invest in chit funds.



5c. Other Respondents

Income No of Respondents Percentage
2 – 3 Lakhs 3 38
3 – 4 Lakhs 4 50
More than 4 Lakhs 1 12
Total 08 100

Income level

13%

38% 2- 3 Lakhs
3-4 Lakhs
More than 4 Lakhs
49%

Inference:

Respondents having considerable amount of income to over come the risk and invest in
chit funds.


A project report on cutomer attitude towards investing in chit funds & customer satisfaction measurement

A project report on cutomer attitude towards investing in chit funds & customer satisfaction measurement

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