{"id":34782,"date":"2021-08-24T12:41:59","date_gmt":"2021-08-24T07:11:59","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=34782"},"modified":"2021-08-24T12:42:01","modified_gmt":"2021-08-24T07:12:01","slug":"nidhi-company-and-chit-fund-company","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/nidhi-company-and-chit-fund-company\/","title":{"rendered":"Nidhi Company and Chit Fund Company: Underlining key differences"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Nidhi Company and Chit Fund Company are two different entities that excel on the same concept, i.e. facilitating financial cushion to its members. This article aims at considering key points that draw a line of distinction between Nidhi Company and Chit Fund Company. <\/p>\n\n\n\n<p>But before we delve into the core topic,\ni.e. what is the difference between Nidhi Company and Chit Fund Company, let&#8217;s\nexplore these entities individually. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/nidhi-company-and-chit-fund-company\/#What_is_the_Nidhi_Company\" >What is the Nidhi Company?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/nidhi-company-and-chit-fund-company\/#Pros_of_Setting_up_Nidhi_Company\" >Pros of Setting up Nidhi Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/nidhi-company-and-chit-fund-company\/#What_is_the_Chit_fund_Company\" >What is the Chit fund Company?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/nidhi-company-and-chit-fund-company\/#Key_Differences_between_Nidhi_Company_and_Chit_fund_Company\" >Key Differences between Nidhi Company and Chit fund Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/nidhi-company-and-chit-fund-company\/#Common_FAQs_regarding_Nidhi_Company_and_Chit_Fund_Company\" >Common FAQs regarding Nidhi Company and\nChit Fund Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/nidhi-company-and-chit-fund-company\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Nidhi_Company\"><\/span>What is the Nidhi Company? <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A Nidhi company refers to a non-banking financial institution that operates u\/s 406 of the Companies Act, 2013. The main business is lending &amp; borrowing money between their members. They are also regarded as the Benefit Funds, Permanent Fund, Mutual Benefit Company, &amp; Mutual Benefit Funds. <strong><em>Ministry of Corporate Affairs<\/em><\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Ministry_of_Corporate_Affairs\"><strong><em>[1]<\/em><\/strong><\/a><\/sup> keeps a tab on their activities. Further, this apex institution also directs them to follow the guidelines relating to deposit acceptance activities. <\/p>\n\n\n\n<p>The term Nidhi refers to an institution that\naims at fostering the habit of thrift &amp; allocates funds amongst its members\n&amp; also receiving deposits &amp; disbursing to its members only for their\nmutual benefit. Nidhi companies came into existence even before the enactment\nof the Company Act 2013. Further, these companies excel on the concept of\n&#8220;Principle of Mutuality&#8221; These companies has garnered immense\npopularity in South India. Presently, more than 80% of the Nidhi companies are\nlocated in Tamil Nadu. <\/p>\n\n\n\n<p>Nidhi companies operate in line with the provisions drafted under Nidhi Rules, 2014. They are legalized in the nature Public Ltd Company. Therefore, they are liable to comply with two sets of conditions, one of Public Ltd. company as per Companies Act, 2013 &amp; another is for Nidhi rules, 2014. No Reserve Bank&#8217;s consent is required to legalize such a company. Every <a href=\"https:\/\/corpbiz.io\/nidhi-company-registration\"><strong>Nidhi Company<\/strong><\/a> is mandated to procure a minimum threshold of members, i.e. 200, within a year from the commencement date. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Pros_of_Setting_up_Nidhi_Company\"><\/span>Pros of Setting up Nidhi Company <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/08\/Pros-of-Setting-up-Nidhi-Company.png\" alt=\"Pros of Setting up Nidhi Company \" class=\"wp-image-34786\" width=\"536\" height=\"494\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/08\/Pros-of-Setting-up-Nidhi-Company.png 1002w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/08\/Pros-of-Setting-up-Nidhi-Company-300x277.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/08\/Pros-of-Setting-up-Nidhi-Company-768x709.png 768w\" sizes=\"(max-width: 536px) 100vw, 536px\" \/><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Chit_fund_Company\"><\/span>What is the Chit fund Company?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A Chit Funds is probably the oldest form of\nsaving scheme in India, and it rules the unorganized money market industry.\nChit funds facilitate access to borrowing &amp; saving to the unbanked populace\nof the country.&nbsp; Chit Fund Companies run\nthe chit fund scheme. <\/p>\n\n\n\n<p>A Chit fund involves groups of members,\nbroadly known as subscribers. An organizer, an entity or a reliable relative or\nneighbour forms a group together &amp; manages the group activities. For their\ncontributions and efforts, the group&#8217;s organizer is either remunerated each\nmonth or at withdrawal time. (the fee might be obliterated in the informal\nevents.) <\/p>\n\n\n\n<p>The fund commences at a predetermined date &amp; continues for the no. of months equivalent to the number of subscribers. Each month, the subscribers invest a set amount of funds into a common pot every month. Then, an organizer conducts an open auction to determine the lowest amount a subscriber intends to take that particular month. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/documents-required-for-nidhi-company-re\">Know the Checklist of Documents Required for Nidhi Company Registration <\/a><\/mark><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Understanding the concept of Chit Fund Schemes via real-world\nexample <\/h3>\n\n\n\n<p>For instance, if the monthly instalment is\nINR 500 &amp; there are 50 subscribers, the pot in the first month will contain\nINR 25,000. Once the winner is determined via auctioning who intends to accept\nINR 20000 for that month, the remaining Rs 5000 is aptly dispensed among the\nrest of the members, excluding the organizer&#8217;s fees.&nbsp; <\/p>\n\n\n\n<p>The winner was able to access Rs 25000 in\nthe first month, and the rest benefited in their share of the INR 5,000\nsurplus. The process reoccurs, dispensing the auction sum to one member each\nmonth. The rest of the subscribers, including the ones who have already taken\ntheir share in the preceding month, continue paying the instalments on a monthly\nbasis. <\/p>\n\n\n\n<p>The system manifests per se as a borrowing\nscheme because members have to access the sizeable amount of money before they\nhave paid in full amount. Moreover, it also acts as a saving scheme, because\nmember contributes every month &amp; may recover a large amount in the future\nwhile obtaining their share of the surpluses.<\/p>\n\n\n\n<p>Variations of the system obliterate the\nauction part instead of determining a winner by conventional procedure, i.e.,\nchit drawing technique. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Key_Differences_between_Nidhi_Company_and_Chit_fund_Company\"><\/span>Key Differences between Nidhi Company and Chit fund Company <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The key difference between Nidhi Company and Chit fund Company is that the latter one is an NBFC that can only accept or lend deposits, while the former refers to a committee that accepts instalments over a fixed timeline that are paid by its subscribers, &amp; the neither accept nor lend the amount as a whole. <\/p>\n\n\n\n<table class=\"table table-bordered\"><tbody><tr><td>\n  <strong><em>Nidhi Company <\/em><\/strong>\n  <strong><em>&nbsp;<\/em><\/strong>\n  <\/td><td>\n  <strong><em>Chit Fund\n  Company <\/em><\/strong>\n  <strong><em>&nbsp;<\/em><\/strong>\n  <\/td><\/tr><tr><td>\n  No\n  Reserve Bank&#8217;s consent is imperative to legalize Nidhi Company as RBI has\n  exempted such type of NBFC from complying with its main norms such\n  registration with RBI etc. \n  &nbsp;\n  Nidhi\n  companies are bound to comply with Nidhi Their undertakings related to\n  soliciting deposits are regulated by&nbsp;\n  Non-Banking Financial Companies &amp; Miscellaneous Non-Banking\n  Companies (Advertisement) Rules (1977) underpinned by Indian government u\/s\n  58A of the Companies Act 1956\n  Rules,\n  2014. \n  &nbsp;\n  <\/td><td>\n  Chit\n  funds are governed as MNBCs i.e. Miscellaneous Non-Banking Companies\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  Nidhi\n  company are incorporated in the nature of Public Ltd co. &amp; therefore,\n  they are liable to follow two sets of norms one is for Nidhi rules, 2014 and\n  another is Public limited company as per Companies Act, 2013\n  &nbsp;\n  <\/td><td>\n  Organized\n  chit fund entity is mandated to legalize under Registrar of Firms (ROFs),\n  Societies and Chits.\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  A\n  Nidhi company refers to a type of entity in the non-banking finance regime,\n  recognized u\/s 406 of the Companies Act, 2013. \n  &nbsp;\n  <\/td><td>\n  A\n  chit fund company refers to an entity that administers conduct as defined in\n  Chit Funds Act, 1982.\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  A\n  Nidhi company functions like a NBFCs where the member are allowed to make a\n  deposit (maybe in a recurring fashion) and lend money.\n  &nbsp;\n  <\/td><td>\n  A\n  Chit Fund is also regarded as a committee that allows its members to make a\n  predetermined monthly instalment for a set period.&nbsp; \n  &nbsp;\n  <\/td><\/tr><tr><td>\n  Nidhi\n  Company is operated by its members only. \n  &nbsp;\n  <\/td><td>\n  Chit\n  Funds are administered by an outsider appointed on the mutually agreed\n  decision of the members. \n  &nbsp;\n  <\/td><\/tr><tr><td>\n  Nidhi\n  Company shareholders can lend money in the form of a loan to its members with\n  some interest. \n  &nbsp;\n  <\/td><td>\n  The\n  Chit Fund members can withdraw a certain amount of funds via auctions or a\n  lucky draw, etc.\n  &nbsp;\n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Common_FAQs_regarding_Nidhi_Company_and_Chit_Fund_Company\"><\/span>Common FAQs regarding Nidhi Company and\nChit Fund Company<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Here are some general queries asked by\nend-users on the CorpBiz\u2019s forum. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What does Nidhi Company do? <\/h3>\n\n\n\n<p>Nidhi Company refers to an NBFC entity that\naims at borrowing and lending money to its members. It fosters the habit of\nsaving among its subscribers\/members and functions on the concept of mutual\nbenefit. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Is Nidhi company safe?<\/h3>\n\n\n\n<p>Indeed, the deposit with Nidhi companies is\nsecure and safe because the MCA and RBI have underpinned norms to ensure the\nsecurity of the deposits. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What is a chit fund company?<\/h3>\n\n\n\n<p>A Chit fund is a widely acknowledged saving\nscheme in India, and it is often deemed as a prevalent player in the\nunorganized market industry. Chit funds facilitate access to borrowing &amp;\nsavings for people who do not have access to conventional credit facilities. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">How do chit fund companies work?<\/h3>\n\n\n\n<p>The chit fund scheme acts like a committee\nwhere a group of individuals contributes to the chit value for a timeframe\nequivalent to the number of investors. The amount accumulated is given to the\norganizer or in charge, which is either selected via an auction or a lucky\ndraw. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Are chit funds legal in India?<\/h3>\n\n\n\n<p>Chit funds are legal in most of the Indian\nstates and UTs. Chit fund entities function under the ambit of the Chit fund\nAct, 1982. Since chit funds lack the status of financial entities, they are not\ngoverned by the RBI&#8217;s norms. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">How does Nidhi Company make money?<\/h3>\n\n\n\n<p>The primary objective of such companies is\nto instil and foster the habit of frugality and savings among its\nsubscribers\/members. These institutions undertake the business of borrowing\nfrom subscribers &amp; lending to members only. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Nidhi Company and Chit Fund Company allow its members to rejoice the sense of financial freedom at minimal risk. Further, these avenues permit the unbanked section to cater to their financial needs with minimal hassle. However, Nidhi companies are somewhat more trustable owing to their legalized business structures and strict norm. Chit Fund Companies, on a whole, have a poor track record of rendering reliable\u00a0 services to the end-users. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/benefits-of-nidhi-company-registration-in-india\/\">Guide on Benefits of Nidhi Company Registration in India<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Nidhi Company and Chit Fund Company are two different entities that excel on the same concept, i.e. facilitating financial cushion to its members. This article aims at considering key points that draw a line of distinction between Nidhi Company and Chit Fund Company. But before we delve into the core topic, i.e. what is the [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":34795,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[31],"tags":[1929],"acf":{"service_id":"9"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":10434,"readingTime":5,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/34782"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=34782"}],"version-history":[{"count":17,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/34782\/revisions"}],"predecessor-version":[{"id":34802,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/34782\/revisions\/34802"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/34795"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=34782"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=34782"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=34782"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}