Finance

This query is : Resolved

Share Report Follow Query Ask a Query

Querist : Anonymous

Querist : Anonymous (Querist)

03 December 2012 Difference Between Mutual Fund & Chit Fund ?

Ajay Mishra

Ajay Mishra (Expert)
Follow

04 December 2012 Hi

Mutual Fund:

A mutual fund is a professionally managed financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The money collected from the investors is used to buy and trade in those assets, which are specifically permitted by its stated investment objective.Thus a growth fund would buy mainly equity assets while an income fund would mainly buy debt instruments.

The investors own the funds assets in the same proportion as their contribution bears to the total contributions of all investors put together.The value of a share of the mutual fund, known as the net asset value (NAV), is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding.

Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in (you don't have to figure out which stocks or bonds to buy). By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification.

Ajay Mishra

Ajay Mishra (Expert)
Follow

04 December 2012 Chit Funds

Chit funds have been a popular savings scheme in several parts of India for generations together now. It has paved it’s way as a convenient finance option amongst businessmen, small scale industrialists, and other small time investors. Though very often shrouded by news of fraudulence, they have still managed to retain their popularity. So what exactly are chit funds and how efficient a financial tool is it? Read on to find out more.

A chit fund is a savings *** borrowing scheme, in which a group of people enter into an agreement to contribute fixed amounts periodically, for a specified period of time. The amount so collected (or the chit value) is distributed among each of the persons in turns, which is determined by way of lots or an auction. Chit funds provide an opportunity to save excess cash on a daily, weekly or monthly basis, and give an easy access to it in case of emergency.

Chit fund schemes possess a predetermined chit value and duration. The amount collected from members is auctioned out every month. Bidders can bid up to a maximum of this total collected value. The difference between the gross sum collected and the actual auction amount, known as the discount, is then equally distributed among subscribers, or, is deducted from the next month’s premium.

Querist : Anonymous

Querist : Anonymous (Querist)

04 December 2012 do we need to get RBI approval for CHIT FUND?
What is the capital required for CHIT FUND ?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
Follow

24 July 2024 Yes, if you are planning to start a chit fund business in India, you typically need to obtain approval from the Reserve Bank of India (RBI) under the Chit Funds Act, 1982. Here are some key points to consider regarding RBI approval and capital requirements for chit funds:

### RBI Approval for Chit Fund:

1. **Legal Requirement:** The Chit Funds Act, 1982 regulates chit funds in India. Section 2(b) of the Act defines a chit fund as "a transaction whether called chit, chit fund, chitty, kuri or by any other name, by or under which a person enters into an agreement with a specified number 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."

2. **RBI Regulation:** Chit funds are regulated by the respective State Governments, but the RBI oversees and regulates aspects related to the use of the name "chit fund," the minimum capital requirement, the conduct of the chit business, and the eligibility criteria for promoters.

3. **Approval Process:** Depending on the state in which the chit fund is established, you may need to apply for approval from the RBI. Generally, you should contact the Regional Office of the RBI for guidance on the approval process and the specific requirements applicable to your location.

### Capital Requirements:

1. **Minimum Capital:** The Chit Funds Act, 1982 specifies that every chit fund company must have a minimum capital. The exact amount varies based on the size and nature of the chit fund business.

2. **State-Specific Requirements:** Some states may have specific guidelines regarding the minimum capital requirement for chit fund companies. It is advisable to check with the concerned State Government or regulatory authority to determine the exact capital requirement applicable in your case.

3. **Purpose of Capital:** The capital requirement ensures that the chit fund has adequate funds to operate smoothly, manage risks, and meet obligations to subscribers.

### Conclusion:

Before starting a chit fund business, it is crucial to thoroughly understand the legal and regulatory framework applicable to chit funds in your state. This includes obtaining necessary approvals from the RBI and complying with the minimum capital requirements specified under the Chit Funds Act, 1982. Consulting with legal and financial advisors familiar with chit fund regulations can help ensure compliance and smooth operations of your chit fund business.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now