1. What is a chit fund ?

Chit Fund is a very old Financial Concept of Small Savings, with a motto of Mutual Help. In a Chit Fund, a specified number of individuals (Subscribers) join together forming a Group in which they resolve to save and deposit with a Designated Person (Foreman/Company), a definite amount of money, for a definite period of time termed as Chit Duration. The savings of these individuals every month are pooled together to make a lump sum amount which is put to Public Auction in the Group with a view to select the individual who gets the amount in that particular month. For ease of selection, Subscribers are asked to offer discounts on the pooled amount. The individual offering/bidding the highest discount is selected for that month as the Prized Subscriber or Prize Winner and he will be eligible to take the pooled amount in that month, after deducting the Discount offered by him and the Commission of the Designated Person/Company. The amount of money foregone as Discount is distributed equally among all the subscribers every month as Chit Dividend.

2. What is a chit fund company ?

Section 2(b) of the Chit Funds Act 1982, defines a Chit Fund Company as ;A Company that Manages, Conducts or Supervises one or more Chit Groups.

3. What is a Chit group?

A Chit Group is a group formed by a definite number of Individuals, who join together with a resolve to save every month a pre-determined sum of money for a specified period. It is also defined as a financial system in which the regular and periodical savings of a group of subscribers is made available to each subscriber on rotational basis. In practice, the number of members in a chit group and the duration of the chits (number of months) will be the same

4. What is Monthly Subscription?

The amount of money paid by each of the subscriber every month for a particular chit group is the Subscription for that Chit Group. The Subscription amount for a particular chit group depends on the Chit Value and the number of members in the group.

5. Who is a Foreman?

The Company or its executive authorized to conduct and manage all the affairs of the Chits is termed as a Foreman.

6. Who is a Subscribers?

A person who joins a Chit Group of the company is called as a Subscriber.

7. Who is a prized subscriber?

The Subscriber taking the chit in a particular month is called the Prized Subscriber in that particular month.

8. What is a Chit agreement?

A Chit Agreement is a Document to be executed by the Prized Subscriber in favour of the Chit Fund Company at the time of taking the Chit Amount in any group.

9. How can one enroll in a Prathithi Chit Group?

Any person interested in joining any chit group may visit the Office of Prathithi Chits at Mandya City or its Authorised Agents for enrollment. Filing of an Application Form, Two Passport Photographs, Proof of Identity, Address Proof, are the pre-requisites for enrolling in a chit group.

10. What are the Identifications of a Subscriber ?

Each of the Subscribers in a Chit Group is allotted a unique Identification Number and Each Chit Group is also given a specific Number, which are required to be mentioned in all correspondences with the company.

11. What are the Chit Groups operated by Prathithi Chits ?

Prathithi Chits presently have Chits with value of Rs. 1,00,000-00 to Rs. 24,00,000-00 with monthly instalments ranging from Rs. 3,000-00 to Rs. 60,000-00 and the duration of these chit groups range from 25 to 30 months.

12. How much secure is the money invested in Prathithi Chits ?

Prathithi Chits is Registered with the Registrar of Companies of the Govt. of India and hence governed by the Companies Act and Chit Funds Act 1982. Presently it is mandatory for any Chit Fund Company to deposit an amount equivalent to the value of the Chits in Fixed Deposits and such Fixed Deposit Receipts are to be pledged in favour of the Registrar of Chits. Thus, the money invested in a Registered Chit Fund Company is secure.

13. What sureties are to be submitted for taking the chit Amount ?

The Prized Subscribers in each month in a Chit Group must provide Sureties/ Securities to the satisfaction of the company to legally ensure the prompt repayment of the Chit Amount received by them. Such Sureties/Securities could be in the form of ;

  • 1) A Personal Security of salaried persons employed in State/Central Govt., Banks, Public Limited Companies Officials,
  • 2) Bank Guarantee in the prescribed format,
  • 3) Fixed Deposit Receipts,
  • 4) Mortgage of Immovable Properties.

14. What is a Chit Auction ?

The process of selection of the Prized Subscriber in a Chit Group every month is called the Chit Auction. The subscribers taking part in this Auction allow discounts on the Chit Amount for taking the chit in that month. All the subscribers who have paid the monthly instalment on time are eligible to participate in the Auction.

15. What is Auction Discount ?

The difference between the Chit Value/Amount and the amount at which the successful bidder takes the chit is called the Discount.

16 . What is Chit Dividend ?

Every month the Prized Subscribers in a Chit Group allow discounts on the Chit Amount for taking the chit in that month. This Discount minus the Company's Commission is equally distributed among all other subscribers in that group as Dividend.

17. What is a lot ?

During the Chit Auction, if more than one subscriber offers similar bids, the Prized Subscriber is decided through Lottery. 'Lot' is the abbreviation for a lottery. This eventuality will occur in case more than one subscriber is willing to offer the maximum allowable bid of 30%. Only in such an event the Prized Subscriber will be decided by drawing lots between the names of such contesting subscribers.

18. What is Chit Operation ?

A group of a definite number of subscribers for a particular Chit Value / Amount is constituted by the company. These subscribers pay the requisite fixed subscription for that particular chit group every month, within the date of Chit Auction. The subscribers must pay the monthly subscription before the date of chit auction to ensure that they are eligible to participate in the Chit Auction which is conducted on a fixed day every month and in that auction, the subscribers interested in taking the chit submit/quote their bids for taking the chit amount that month. The highest bidding subscriber, called the prized subscriber, is given the chit in that month. There is a maximum limit (30%) and minimum limit (5%) for bidding in the Chit Auction. The Chit Amount minus the Maximum Bid Amount during the month gives the Chit Discount (called as "Sodi" in Kannada). Company's Commission is deducted from this amount and the balance is distributed equally among the remaining subscribers in the group as Dividend. In practice, the subscribers are asked to pay the next month's chit subscription deducting this amount of Dividend allocated to their share the previous month. The successful bidder or Prized Subscriber will have to provide adequate surety or guarantee or security to the satisfaction of the Company.

19. What is the reason for seeking security ?

The Chit Fund Company has the responsibility to guarantee absolute security for the investments of all its subscribers. At any time during the chit period, the company pays to the Prized Subscriber more money than what he has actually subscribed till that time, with the belief that he will pay the future instalments promptly and on time. Hence, it becomes the duty of the company to legally ensure proper repayment of such future instalments due in that particular group. So, the value of the security sought for will always be much higher than the Chit Amount taken by the Prized Subscriber. It can also be said that the prized subscriber takes a Loan/Advance from the Chit Fund Company, giving an undertaking to repay the said Loan/Advance promptly in future instalments and enable the Foreman to pay the other subscribers in the group every month.

20. How can a Subscriber participate in the Chit Auction ?

All the subscribers in the Chit Group are automatically entitled to participate in the Chit Auction. The eligibility of a subscriber for participation in the chit auction depends on his payment of the monthly subscription. Hence, the subscribers have to ensure that their monthly chit subscription is paid well before the date of Chit Auction. An eligible subscriber can participate in the Chit Auction personally or authorize the company (Foreman) to bid on his behalf by giving his maximum bid in writing to the Foreman before the Auction. A subscriber can also authorize any third person to participate in the Auction by giving a Written Authorization Letter to that effect, attesting the signature of the Authorised Person.

21. What is a Subscription Number ?

Each Chit Group is identified by a unique code. In the same way each of the subscribers in that Chit Group will be given a unique subscriber number to easily identify him and also to enable him to make on-line transactions and to maintain confidentiality. If a subscriber enrolls himself in more than one Chit Group, obviously he will be having more than one subscription number allotted to him.

22. How are Auctions Conducted ?

The Subscribers in a Chit Group assemble at the office of the company on a specified date and time every month and the Foreman starts the Auction Process by calling the Minimum Bid (discount) for that month. Then the subscribers present join the process by putting up their bids in the increasing order, subject to a minimum increase of Rs. 100-00 over the previous bid. This process continues till no one submits an increased bid to the previous bid. The Foreman will then call this maximum bid three times giving opportunities to other subscribers present and to make sure that no one is willing to offer an increase. The subscriber offering the maximum bid, called the Prized Subscriber for that month, is given the Chit Amount (Chit Value - the Discount offered) in that month after observing the requisite formalities.

23. What is the purpose of Bidding in a Chit Auction ?

Every subscriber joins a Chit Group with a purpose and it is known only to him as to when he needs money and the nature & importance of its requirement. So, in each group, there will be a contest to take the chit amount between the subscribers. Bidding in the Auction is the mode of selecting the successful one among these contestants and in turn this provides maximum benefit to other non-prized subscribers as higher return on their investment.

24. What is the time taken for payment of the Chit Amount ?

The normal time that is required by the company to pay the chit amount is specified as One Month. But this period also depends on the Prized Subscriber's readiness and capability to furnish Surety/Guarantee/Security acceptable to the Company or its Legal Advisors. In this one month, the company has to follow certain legal formalities like obtaining Valuation of the Property offered as Security, Legal Scrutiny of its Documents, entering into a Chit Agreement etc. Only after satisfactory completion of all these requirements, the Chit Amount will be paid to the Prized Subscriber.

25. How are details of Auction, Dividend, Monthly Subscription conveyed to the subscribers ?

Arrangements have been made to inform all the subscribers in a group the details of Chit Auction, Dividend and the next month's Subscription to be paid etc., through SMS. The subscribers can also collect such information from the office of the company. But non-receipt of such communication shall never be the reason for the delay in paying or non-payment of monthly subscriptions. Subscribers opting for on-line transactions can access their account information using their unique ID and Passwords to be provided by the company.

26. What are the modes of Payment of Subscription ?

1. Subscribers can make payment of monthly subscriptions through Cash, Account Payee Cheques or Demand Drafts. It is the duty of the subscribers to obtain receipts for having made payment through cash. It is the duty of the subscribers to ensure that the cheques issued by them are encashed before the Date of Chit Auction, to enable them to become eligible to participate in the Chit Auction. Third Party Cheques are not accepted. Monthly Subscriptions can also be paid through "Collectors authorized by Prathithi Chits" against issue of Cash Receipt.

2. Subscribers opting for On-Line mode of transactions may directly pay on- line through Net Banking through the Web Site of Prathithi Chits. For more details visit "www.prathithichits.com".

3. Subscribers using ECS (Electronic Clearing System) may issue a Mandate authorizing their Bank to debit their account the amount of Chit Subscription every month.

27. What are On-Line Chit Funds ?

As the word on-line denotes, the subscribers ; can Pay the Monthly Subscription Online, Bid Online, verify the account to ascertain the Auction Bid Amount, Dividend Received, Next Month's Subscription and other account details at their finger tips and can also receive payments of Chit Amount On- line.

28. How many Chits can a Subscriber join ?

A Subscriber can take a maximum of two chits in a group. However, the same subscriber may join another group of chit for a different amount.

29. How is Chit Fund better than FD or Mutual Fund ?

The subscriber saves or invests comparatively a smaller sum in a Chit every month. On the other hand one needs an accumulated big sum to invest in FDs and Mutual Funds. In case of need, it is easy to borrow in Chits as compared to the FDs & Mutual Funds and this borrowing carries lower rate of interest than the ones prevailing in Banks. The borrowing from Chit Funds is always easier, simpler, faster and cheaper than borrowing from a Bank.

30. Can a Subscriber cancel his subscription from a chit Group ?

In the event a subscriber wants to withdraw from the chit group in the middle of the chit duration, he has to submit a written application to the Foreman expressing his intention. The Foreman inducts another person into the Group in his place. Only at the time of closure of the chit group and settlement of the new incumbent's account, the Withdrawing Subscriber will be eligible to get back the amount invested by him in the chit after necessary deductions, as per the Agreement.

31. Can a subscriber Change his Address in the middle of a Chit ?

It is the duty of the subscriber intending to change his registered address, to intimate the Foreman immediately and get the new address entered in the Company records. In the absence of a written intimation of change of address, the Foreman will not be responsible for non-receipt of any intimation or notice or communication from the company in connection with the said chit group.

32. How can a subscriber clear his doubts and get answers to his questions ?

Prathithi Chits welcomes all enquiries, observations, suggestions and comments from its subscribers and well wishers. Please feel free to contact us at our office or call us.