The Nidhi Company and the Chit Fund Company: Key Differences

The Nidhi Company and the Chit Fund Company: Key Differences

Nidhi Company and Chit Fund Company are two separate companies that excel at the same thing: providing financial security to their members. The purpose of this essay is to examine important aspects that distinguish Nidhi Company from Chit Fund Company.

 But, before we get into the meat of the matter, what is the difference between a Nidhi Company and a Chit Fund Company, let’s take a closer look at each of these entities individually.

What is the Nidhi Company?

A Nidhi company is a non-banking financial organization that functions under Section 406 of the Companies Act, 2013. The major business of the organization is lending and borrowing money among its members. Benefit Funds, Permanent Funds, Mutual Benefit Companies, and Mutual Benefit Funds are all terms used to describe them. Their actions are monitored by the Ministry of Corporate Affairs[1]. This apex institution also instructs them to follow the criteria for deposit acceptance operations.

The name Nidhi refers to an organization that promotes thrift by allocating funds among its members, as well as accepting deposits and disbursing cash to its members only for their mutual benefit. Nidhi companies existed before the introduction of the Company Act of 2013. Furthermore, these businesses thrive in the “Principle of Mutuality.” These businesses have gained a lot of traction in South India. In Tamil Nadu, more than 80% of Nidhi businesses are now located. 

Nidhi businesses follow the terms of the Nidhi Rules, which were created in 2014. They are legally recognized as a Public Limited Company. As a result, they must meet with two sets of conditions: one for a public limited company as defined by the Companies Act of 2013, and another for Nidhi regulations of 2014. The approval of the Reserve Bank is not necessary to legalize such a firm. Within a year of its inception, every Nidhi Company is required to recruit a minimum of 200 members.

What is the Chit fund company?

Chit Funds are India’s oldest type of savings program, and they dominate the unorganized money market business. Chit funds give the country’s unbanked population easier access to borrowing and saving. The chit fund system is managed by chit fund companies.

A Chit fund is made up of groups of people who are referred to as subscribers. An organizer, an entity, or a trustworthy family or neighbor assembles a group and oversees its operations. The group’s organizer is compensated either monthly or at withdrawal time for their contributions and efforts. (In casual occasions, the charge may be erased.)

The fund starts on a specific day and lasts for several months according to the number of subscribers. Every month, subscribers contribute a predetermined amount of money to a shared pot. The lowest amount a subscriber plans to take that month is then determined by an open auction conducted by an organizer.

Difference between the Nidhi company and the Chit fund company?

The main distinction between Nidhi Company and Chit Fund Company is that the latter is an NBFC that can only take or lend deposits, whilst the former is a committee that accepts installments from its subscribers over a certain period, but cannot accept or lend the entire amount.

Nidhi company:

  • The main distinction between Nidhi Company and Chit Fund Company is that the latter is an NBFC that can only take or lend deposits, whilst the former is a committee that accepts installments from its subscribers over a certain period, but cannot accept or lend the entire amount.
  • Nidhi companies are formed like public limited companies, and as a result, they must adhere to two sets of regulations: one for Nidhi rules, 2014, and another for public limited companies as defined by the Companies Act, 2013.
  • A Nidhi company is a form of non-banking financial firm recognized under Section 406 of the Companies Act, 2013.

Chit fund company:

  • MNBCs i.e. Miscellaneous Non-Banking Companies, or money market mutual funds, are controlled by the same rules as chit funds.
  • Under the Registrar of Firms (ROFs), Societies and Chits, an organized chit fund company is required to legalize.
  • A Chit Fund is a committee that allows its members to pay a fixed monthly installment for a specified length of time.
  • A chit fund business is an organization that manages chit funds, as specified by the Chit Funds Act of 1982.
By | 2021-09-13T12:38:14+05:30 September 13th, 2021|Corporate World|0 Comments

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