Saturday, August 6, 2011

Three Tips to Invest in Reliable Chit Funds

Hardly a day passes without the news of the collapse of a money chain company, an investment firm or a chit fund. Still, a large number of people invest in similar companies. They innocently think that such things will not happen to them. In fact, it may not happen to them, if they are incredibly lucky. Otherwise, it would be better if you keep the following guidelines in mind while investing in chit funds.

Before we start, here is a disclaimer: We do not say that KSFE is the only company that conducts reliable chit business in Kerala. There are some, very few in fact, private chit owners who do genuine and reliable business.

Tip no. 1: Do the Math

Investment funds and private chit companies have one thing in common. They twist the numbers in their favor, particularly in their advertisements. Thankfully, if you are smart enough, you can judge a chit company solely from its advertisements. Check its schemes and make sure that the numbers add up. That is, for any genuine chitty scheme, the number of months and the number subscribers in that scheme have to be the same. Because chit schemes work on the basic principle that there is one winner of the chitty prize money every month. So, if the duration of the chitty is 100 months, there have to be 100 subscribers as well.

Also, the monthly installment should be such that the amount multiplied by the duration should give the total amount of the chitty (or sala, as it is called in Malayalam). For example, if the total amount of the chitty is Rs.500,000/- and the duration is 100 months, then the monthly installment (the amount before deducting the monthly dividend) should be Rs. 5000/-.

Correct: Rs.5000 x 100 months – Rs.500,000/-
Wrong: Rs.5000 x 120 months – Rs.500,000/-

The second condition is numerically impossible and financially fraudulent.

Tip no.2: Check Registration Details

Kerala has a solid legislation regarding chit funds, the Kerala Chitty Act, which has been going strong for the last three decades. It is intended to protect the rights of subscribers and regulate the activities of the chit companies.

For a start, a chit company must register each chitty with the Registrar's Office in the area. Not only that, the company has to file in the Registrar's Office the details of chitty auction each month and the annual balance sheet of each chitty.

More importantly, the chit companies have to deposit a security before the commencement of each chitty for an amount equivalent to the total amount of the chitty. For example, for a chitty of Rs.100000/-, a treasury deposit of the same amount has to be made. This deposit will be released six months after the completion of the chitty and after publishing the details in Kerala Gazette.

A chitty company has to comply with all these norms if they register chitties in Kerala. But our law allows chit companies to register in other states and conduct operations here. A bit like lotteries from other states and other countries. It is better to be circumspect of the chitties registered in other states or cities. The most notorious places for fraudulent chitty registration are Faridabad, Jammu, Srinagar, and Chennai.

Tip no.3: Check Security Details

This might sound odd, but it is the truth. The chitty company with the most stringent security criteria lasts the longest. Your money will be safe there. That is the reason why we accept genuine and proper security before releasing prize money. If a subscriber stops paying monthly installments after accepting the prize money, how can the chit company provide prize money to the other customers.

All chitty schemes basically distribute the money, after taking some profit in the form of foreman commission. If one or two persons default, chit companies somehow manage. If the number defaulting customers increases, the chit company will be in trouble. Many chit companies have collapsed because of defaulted customers. A good chit fund cannot afford to have defaulting prized subscribers. So, the security norms have to be water-tight.

KSFE, as is quite well known, does not lack in this aspect!

We would love to hear from you: comments, suggestions , doubts, corrections, … anything.

Thanks for reading. And we wish you all safe and ultimately happy-ending investing.


  1. Is there any URL which lists the list of registered chit funds under the Kerala Chitty Act ?

  2. jerin jacob. Did you Google it? You may also check with IG of Registration Department, at Transport Bhavan, East Fort, Thiruvananthapuram. Anyways, Kerala Chitty Act is no longer valid now. It has been annulled, and Central Chitty Act has come into force. KSFE now operates under Central Chitty Act.

  3. Thanks for the update.I think only Kerala Chitty Act 1975 is not valid any more. Kerala Chitty Act 2012 is still valid. Correct me if I am wrong ?
    I have tried to google it. But I couldn't find any URL which lists the registered chit funds under Kerala Chitty Act 2012 and/or Central Chitty Act.

  4. Jerin Jacob. What we can safely say is that we are operating under Central Chit Fund Act 1982. To the best of our knowledge, we are the only company doing that in Attingal and nearby areas. We shall post here, if we get any update on this.

  5. Jerin Jacob, We checked with one of our officials who is well-versed in these matters. This is what he sends in. "As per a recent verdict of the Hon. Supreme Court of India, The Central Chit Fund Act 1982 is applicable throughout India, except Jammu and Kashmir. Kerala is no exception to this. Accordingly The Government Of Kerala made necessary rules in accordance with the Central Chit Fund Act 1982, for facilitating the smooth conduct of Chit operations in Kerala. So the Chit Fund Rules framed as per a Government Order dated 5.6.2012 strictly adheres to the Chit Fund Act 1982. The base Act is Central Chit Fund Act 1982".

  6. Thanks for the update.I must say this blog is very useful and KSFE Attingal Evening Branch is doing wonderful job in passing the important information to public through this blog.


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