What is a chit fund?

There are also variations of chits where the savings are done for a specific purpose

A company trying to lure investors with promise of handsome return on their investment in a short span of time is nothing new. It is the investor whose capital investment vanishes if such promises and companies go bust.
 
In a latest, nearly 1,200 scribes lost their jobs after West Bengal-based Saradha Group shut all its media outfits (a mix of news dailies and TV channels), West Bengal government is now in a dilemma of whether to crack the whip on the group and other such chit fund companies. Market regulator, the Securities and Exchange Board of India (Sebi), has already initiated a probe into the activities of the group. Reports suggest that at least Rs20,000 crore of deposit-holders’ money is at risk after the sudden closure of the firm.

 
Saradha Group, which had started its chit fund business in the state in early 2000's had interests in realty, tours and travel and media besides other segments. Its chairman Sudipto Sen, had started out as a small time property dealer in the late 1990's, reports suggest.    Click here to know more about the group
 

What is a chit fund?
 
As per one definition, a chit fund company is the one which manages, conducts or supervises, as foremen, agent or in any other capacity, chits as defined in Section 2 of the Chit Funds Act, 1982. Such schemes can be conducted by organised financial institutions or may be unorganised schemes between friends and/or relatives.

According to Section 2(b) of the Chit Fund Act, 1982, "Chit means a transaction whether called chit, chit fund, chitty,committee, kuri or by any other name by or under which a person enters into an agreement with a specified of persons that every one of them shall subscribe a certain sum 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 specified in the chit agreement, be entitled to the prize amount"

 
Chit Funds can be misused by its promoters and there are many several instances of people sunning such Ponzi schemes and then absconding with investor’s money.
 
 
 
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