Chit Funds: Risky as agents can decamp with investors' hard cash

Hyderabad: Non-registered chit funds are risky. Agents can abscond with the funds or clients can refuse to pay or continue with the scheme and the burden falls on the agents. It could be seen as a good investment only if the promoters are trustworthy, known, and follow the rules.

Chit funds are required to be registered under the Chit Funds Act 1982 or under any of the Acts promulgated by various state governments. Any chit fund that has a pot greater than Rs 100 needs to be registered. 

The trouble is that a lot of chit funds are not registered. The proportion of unregistered to registered chit funds is high. 

“The organiser of the scheme is allowed first access to the pot. In many cases, the organiser can just scoot after he has been handed the money. “People have been known to lose a lot of money in such cases. This is a big risk when it comes to putting money into a non registered chit fund,” said Pratap Reddy, a financial adviser working at a city bank.

There are cases of agents running away with the monthly deposits. A case was registered with the Hussainialam police in 2016-17 against a couple who decamped after duping chit depositors to the tune of Rs 1 crore. When they were caught, the police could recover only Rs 30,000 in cash. The couple had cheated 200 people, many from the Old City and belonging to the lower middle class and poor families who had no resources to fight back. 

There is also the risk of members stopping their contributions once they have received the chit amount. The chances of this happening are higher in an unregistered chit fund.