A Business Encyclopedia

Chit Fund Company

Definition: The Chit Fund Company is a financial institution engaged in the principal business of managing, conducting and supervising the chit scheme.

The “Chit” is the financial arrangement wherein a certain number of persons/subscribers enter into an agreement that subscribes to a certain sum of money by way of installments over a definite period of time. Each subscriber shall in his turn, be entitled to a prize amount as determined by the lot, or tender or auction or in such other manner as specified in the chit agreement.

Thus, the Chit Fund Company collects the subscriptions by way of installments over a definite period from the certain number of subscribers and distributes the same as a prize amongst them. The operations of the Chit Fund Company are governed by the Chit Fund Act, 1982, administered by the State Governments. While the deposit taking activities of, such firm is regulated by the Reserve Bank of India.

The chit scheme is also known by different names, such as Chitty, Kuri, Chit, Chit Fund, etc. and is either organized by the financial institutions or privately i.e. between friends or relatives. The chit fund company has played a dominant role in the financial development of the people of Kerala by offering easy access to the credit. Chitty is the most common practice prevalent in different sections of the society.
Example, The Kerala State Financial Enterprise is the renowned chit fund company administered by Kerala State Government deals in the principal business of Chit Scheme.

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