The Chit Funds (Amendment) Bill, 2018:

February 20, 2018

How Chit Funds function:

Say, 25 subscribers agree to subscribe an amount of INR 2,000/- for 25 months i.e. for a total chit value of INR 50,000/-. In his turn and in a manner which is specified in the agreement, the subscriber begets his chit amount.A simple formula helps us readily notice the working of chits:

Monthly Premium × Duration in Months = Gross Amount

In the above example, 2000*25=50,000/- which is called the chit value. The chit starts on an announced date, all the subscribers come together for the auction/lot.

During auction, subscribers in need, who are interested, bid by allowing percentage of subscription to be forgone.

The highest bidder i.e. who allows maximum percentage to subscribers is given the chit amount.  After deducting a commission/remuneration to be paid to the foreman of the company, the amount foregone by the subscriber is distributed as dividend amongst all the subscribers in the draw. 

Before the successful bidder draws the amount, he proposes securities – immovable properties, Life Insurance Policies, Bank Guarantee, etc., depending on the liability.


  1. Context:

    1. Saradha Scam and Rose Valley scams have maligned the name of Chit Funds and thus it becomes necessary to protect citizens from such scams. Government plans to do it by making Chit Funds more transparent and improve the functioning of Chit Funds.

  2.  Chit Funds Regulation in India:

    1. Chit Funds Act, 1982, administered by the respective State Government with the help of State Rules is the primary legislation for regulating Chit Funds.

    2. The State can also seek advice and assistance from Reserve Bank of India on policy matters.

    3. There is an office of “Registrar of chit funds” in every State that monitors operation of the chit company minutely. All the Chit Funds need to be registered with Registrar of Chit Funds.

    4. Any dispute touching the management of a chit business between the chit company and the subscriber shall be referred to by any of the parties to the dispute, to the registrar for arbitration and "NO" civil court shall have jurisdiction to entertain any suit or other proceedings in respect of any such dispute.




  3.  Chit Funds (Amendment) Bill 2018:

    1. Use of the words "Fraternity Fund" for chit business under Sections 2(b) and 11(1) of the Chit Funds Act, 1982, to signify its inherent nature, and distinguish its working from "Prize Chits" which are banned under a separate legislation. this will signify its inherent nature of being a borrowing and saving scheme, and not one that just takes deposits.

    2. While the act needed the physical presence of minimum two subscriber, the bill allows them to participate through video conferencing.

    3. Foreman's commission has been increased to 7% from 5%.

    4. Amending Section 85 (b) of the Chit Funds Act, 1982 to remove the ceiling of one hundred rupees set in 1982 at the time of framing the Chit Funds Act, which has lost its relevance. The State Governments are proposed to be allowed to prescribe the ceiling and to increase it from time to time.

    5. Allowing the foreman a right to lien for the dues from subscribers, so that set-off is allowed by the Chit company for subscribers who have already drawn funds, so as to discourage default by them; and

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