abhishreshthaa
Abhijeet S
SRI TALACAUVERY CHITS PVT. LTD.
INCEPTION:
The business was started in 1982 as a partnership firm. During that time there was no government control over the business except for income tax. Later during 1984, rules were framed by the Government of India & Government of Karnataka.
All those who were doing chit business, were asked to register their names with respective chit officials and follow all the rules and regulations. As per the rules the business was restricted for a partnership firm and could not be expanded.
So in order to expand the business, the private limited company was floated by the name “Sri Talacauvery Chits Pvt. Ltd.” During the year 1991-92. So even though company was floated during 1991-92, the company was experienced and had a ready base of subscribers.
INTRODUCTION:
The business is in the field of finance, non-banking financial sector of RBI. The company does not collect, and suppose to collect deposits in the form of fixed deposits.
The company forms a group of members (subscriber) who contribute a fixed amount (installment) and the accumulated amount is taken by one of the members of that group who is prepared to disallow maximum amount. This discount allowed amount is called bid amount. Out of the bid amount the
company deducts a fixed amount (commission) and divides the balance amount equally to all the members of the group including the person who has bid the amount .Actually this dividend amount (dividend) will be credited to the account of all the members in the groups. The procedure of bidding the amount, contribution of installments etc. continues for a period, i.e. number of months equal to the number of members.
So, each member will be eligible to take the amount once during the period of chit. By the time the group completes each members of the group gets the amount once. Also the member who has taken the chit will not be eligible to participate in the bid during the succeeding months. But all the members irrespective of whether the amount is taken or not, should contribute for the installations for the whole duration.
Whenever a chit is taken by a member, proper documentation is done and proper securities are taken from the member towards future installments payable by the member.
For e.g. A chit of Rs.1,00,000/- (chit amount) having 25 members (subscribers) shall contribute Rs 4,000/- as installment i.e. 100000 divided by 25 = 4000/-
The duration of the chit = 25months i.e. equal to number of members. Here the frequency of the chit is monthly. The frequency can be weekly or fortnightly or monthly. In case of weekly / fortnightly / monthly, installments are payable every week / fortnight / month respectively. All the 25 members shall be given serial numbers starting from 1 to 25.
Any party can have more than one chit depending on their convenience but depending on their memberships they have it contribute their installments. Each group shall be denoted by a code name depending on the convenience of the company (promoter). A member can also have memberships in different groups, one group has nothing to do with another and each group may have same amount or different amounts and also same duration or different durations i.e., chit value, duration, number of members and installments are all variable. In the current group, out of the total members the Company (promoter) will also have a membership.
The Company will have membership in each and every group. As stated above 25 members shall contribute Rs 4000/- each which amounts / totals to Rs 1,00,000/-. During the first month, the whole of Rs.1, 00,000/- is taken by the company. During the second month all the 25 members including the company shall contribute again Rs.4,000/-.This total amount of Rs.1,00,000/- is kept for bidding by the members of the group. Since the company has already taken the chit during the first month it is not eligible to participate in the bidding. Among the balance 24 members even though all the 24 are eligible to participate in the bid, only the members who are in need of money shall normally participate in the bidding.
Among the participants who ever bids maximum amount, he is allowed to take the chit. Again the maximum amount of bidding is restricted to 40% (i.e. in this case Rs.40,000/-) as per the government rules and the minimum bidding is also fixed by the promoters according to there convenience. In the present case the company has fixed at rate of 6% p.a. of chit value as a minimum bidding. At the rate of 6% of Rs.1,00,000/- per month it will amount to Rs.500/-.
During the second month balance period will be 23 months. So the minimum bid will be (500 X 23) =11500+commission of 5% of the chit value i.e. Rs.5,000/- in this case. Even though maximum and minimum bids are fixed, the participants can bid in between the limits and sometimes go up to the maximum limits.
When more than one member opt for maximum bidding of 40% there will be a lucky dip among the members who opt for maximum bid and the lucky winner will be declared as prized subscriber. Sometimes more than one member offer same bid amount which may not be maximum. In that case also lucky dip method is followed. Out of this bid amount the company deducts 5%of the chit value (i.e. Rs.5,000/- in this case) as commission and balance amount will be distributed to all the members. For e.g. if the bid amount is Rs.40,000/-, Rs.5,000/- is deducted and the balance Rs.35,000/- is distributed among the 25 members which will be Rs.1,400/-.
This amount shall be credited to account of all the members. While paying the next installment i.e. third installment each member has to pay Rs.2,600/- (Rs4,000 -Rs1,400). So, the total amount will be again Rs.1,00,000/- (2600 X 25 +1400 X 25). Say a member bearing No.5 has taken the chit during the second month, now during the third month the company and member bearing the serial No.5 are not eligible for bidding even though they pay the chit installment.
All the other members who are called non-prized subscribers are eligible for bidding. This procedure of bidding, distribution of dividend and payment of chit amount continues every month. Like this during the course of 25 months each member will take the chit amount once. The company earns commission of 5% of chit value every month during the course of chit which is the main income of the company.
As many number of groups the company conducts the commission earned proportionately increases. The main aim of the company is to enroll financially sound members, so that collection of chit installments will be smooth and the disbursement of the chit amount will be easy and in time.
BOARD OF DIRECTORS:
Totally there are 9 directors in the company with a Managing Director.
1. Mr. K.A.Prabhakara - Managing Director
2. Mr. B.Nagaraja - Director
3. Mr. K.N.Anantha Murthy - Director
4. Mr. M.N.Radhakrishna - Director
5. Mr. S.S.Harinath - Director
6. Mr. K.A.Ramnath - Director
7. Mr. C.N.Vijay Kumar - Director
8. Mr. S.V.Amarnath - Director
9. Mr. S.V.Satyanarayana Gupta - Director
BUSINESS OPERATIONS:
In chit business, the income increases, depending on the number of chit groups run by the company. On the other hand, risk increases with increase in the number of chit groups. The intelligence in the business is to select financially sound customers, so that the defaulters are less or nil.
Every time when a group is started, a set of good members are enrolled. The company is not in a hurry to start a chit group, unless all the members are selected and enrolled. The group will be started by doing so and the risk involved is minimized.
Secondly, when a member takes the chit, proper care should be taken in doing documentation with proper surity and securities towards the balance chit amount payable by the subscribers. In doing so, the legal aspects shall be taken care.
With all the above precautions and by running more number of chit groups the company earns more profits.
OBJECTIVES OF THE COMPANY
The main objectives pursued by the company on its incorporation are as under:-
i) To carry on chit fund business in all its branches and kinds but, not to carry on any business prohibited by the prize chit and money circulation scheme (banking) act, 1978.
ii) To carry in chit fund business as per chit fund act, 1982 read with the chit funds (Karnataka) rules 1983 and such other activities as may be provided under the said act as amended from time to time.
iii) To enter into agreement and contract, with Indian or foreign individuals, companies or other organizations for technical, financial or any other assistance for carrying out all or any of the objectives of the company.
iv) To advertise and adopt means of making known the business activities of the company in any as may be expedient.
v) To amalgamate with any company or companies having objects all together or in part similar to those of this company.
vi) To take over, approve, adopt or ratify all steps taken and comities made by the promoters for the proposed business of the company prior to its incorporation.
vii) To open accounts with any individual, firm or company or with any bank or banks and to pay into and withdraw monies from such account or accounts.
viii) To undertake and execute any trust, the undertaking where of may seem desirable either gratuitously or otherwise.
ix) To distribute any of the properties of the company amongst the members in specie or in kind consequent upon the winding of the company.
x) To improve, manage work, develop, alter, exchange, mortgage, lease, turn to account, abandon or otherwise deal with all or any part of the properties, rights and concessions of the company.
xi) The liability of the company is limited.
MARKET SHARE AND COMPETITORS:
Market for chit business in Bangalore is very vast. The market is of 2 types.
1. Enrolling the members who ever comes without seeing their credibility. However when the members take the chit, care is taken to take proper security/surety.
2. While enrolling the members itself, the financial background of the members is taken care, so that when the members take the chit, the company will not much worry about the members.
This company is selecting the members of second type. Further the company enrolls the members, not only financially sound members but the members will also be known to the directors personally or through their friends. By doing so market share is slightly narrowed, but the risks involved is reduced.
The competitors in this field are many. Even then since the company enrolls the members from the friends and relatives of the directors, afraid of competition does not exist. By giving good service i.e. payment of chit amount in time attracts customers. There by the customers bring in their friends and relatives for future groups.
Since the original customers will be good, they bring in their friends and relatives who also will be normally good. There by the company is not afraid of the competitors.
FUTURE PROSPECTS AND GROWTH OF THE COMPANY:
The company is about 13yrs old. During the initial period the company was running about 8 groups which got expanded to nearly 15 groups. As usual, in all businesses, the number of defaulters is reduced now and further numbers of groups have also increased.
By employing few marketing assistants, a search can be made to enroll new sound members. The assistants can also be used to lure many old customers to enroll again. This way business can be improved further and prospects for improvement in business are good.
DIFFERENT TYPES OF FORMS
The company uses different types of forms while conducting the chit business. Some of those are as under:
1. Chit agreement Form
2. Pronote
3. Consideration Receipt
4. Covering Letter and Undertaking by Surety
1) CHIT AGREEMENT FORM
This is an agreement between the promoter i.e. the company which conducts the chit and the subscriber who wants to become a member in the chit group. All the terms and conditions which are beneficial to both the company and the subscriber are enlisted in this form.
2) PRONOTE
This is a form of letter legally used for payment of money by any party. Here it is used for the balance of money payable by the subscriber to the company. This will contain all the details of chit group in which the subscriber is due to pay to the company.
3) CONSIDERATION RECEIPT
This is the receipt given by the subscriber to the company for having received the chit amount without which the pronote is not valid.
4) COVERING LETTER AND UNDERTAKING BY SURETY
This is the letter of undertaking by surety to the subscriber in which surety takes up the joint responsibility of the amount in the above pronote. By this the company has all the right to sue both subscriber and surety if the subscriber fails to pay the balance installments of the chit group.
INCEPTION:
The business was started in 1982 as a partnership firm. During that time there was no government control over the business except for income tax. Later during 1984, rules were framed by the Government of India & Government of Karnataka.
All those who were doing chit business, were asked to register their names with respective chit officials and follow all the rules and regulations. As per the rules the business was restricted for a partnership firm and could not be expanded.
So in order to expand the business, the private limited company was floated by the name “Sri Talacauvery Chits Pvt. Ltd.” During the year 1991-92. So even though company was floated during 1991-92, the company was experienced and had a ready base of subscribers.
INTRODUCTION:
The business is in the field of finance, non-banking financial sector of RBI. The company does not collect, and suppose to collect deposits in the form of fixed deposits.
The company forms a group of members (subscriber) who contribute a fixed amount (installment) and the accumulated amount is taken by one of the members of that group who is prepared to disallow maximum amount. This discount allowed amount is called bid amount. Out of the bid amount the
company deducts a fixed amount (commission) and divides the balance amount equally to all the members of the group including the person who has bid the amount .Actually this dividend amount (dividend) will be credited to the account of all the members in the groups. The procedure of bidding the amount, contribution of installments etc. continues for a period, i.e. number of months equal to the number of members.
So, each member will be eligible to take the amount once during the period of chit. By the time the group completes each members of the group gets the amount once. Also the member who has taken the chit will not be eligible to participate in the bid during the succeeding months. But all the members irrespective of whether the amount is taken or not, should contribute for the installations for the whole duration.
Whenever a chit is taken by a member, proper documentation is done and proper securities are taken from the member towards future installments payable by the member.
For e.g. A chit of Rs.1,00,000/- (chit amount) having 25 members (subscribers) shall contribute Rs 4,000/- as installment i.e. 100000 divided by 25 = 4000/-
The duration of the chit = 25months i.e. equal to number of members. Here the frequency of the chit is monthly. The frequency can be weekly or fortnightly or monthly. In case of weekly / fortnightly / monthly, installments are payable every week / fortnight / month respectively. All the 25 members shall be given serial numbers starting from 1 to 25.
Any party can have more than one chit depending on their convenience but depending on their memberships they have it contribute their installments. Each group shall be denoted by a code name depending on the convenience of the company (promoter). A member can also have memberships in different groups, one group has nothing to do with another and each group may have same amount or different amounts and also same duration or different durations i.e., chit value, duration, number of members and installments are all variable. In the current group, out of the total members the Company (promoter) will also have a membership.
The Company will have membership in each and every group. As stated above 25 members shall contribute Rs 4000/- each which amounts / totals to Rs 1,00,000/-. During the first month, the whole of Rs.1, 00,000/- is taken by the company. During the second month all the 25 members including the company shall contribute again Rs.4,000/-.This total amount of Rs.1,00,000/- is kept for bidding by the members of the group. Since the company has already taken the chit during the first month it is not eligible to participate in the bidding. Among the balance 24 members even though all the 24 are eligible to participate in the bid, only the members who are in need of money shall normally participate in the bidding.
Among the participants who ever bids maximum amount, he is allowed to take the chit. Again the maximum amount of bidding is restricted to 40% (i.e. in this case Rs.40,000/-) as per the government rules and the minimum bidding is also fixed by the promoters according to there convenience. In the present case the company has fixed at rate of 6% p.a. of chit value as a minimum bidding. At the rate of 6% of Rs.1,00,000/- per month it will amount to Rs.500/-.
During the second month balance period will be 23 months. So the minimum bid will be (500 X 23) =11500+commission of 5% of the chit value i.e. Rs.5,000/- in this case. Even though maximum and minimum bids are fixed, the participants can bid in between the limits and sometimes go up to the maximum limits.
When more than one member opt for maximum bidding of 40% there will be a lucky dip among the members who opt for maximum bid and the lucky winner will be declared as prized subscriber. Sometimes more than one member offer same bid amount which may not be maximum. In that case also lucky dip method is followed. Out of this bid amount the company deducts 5%of the chit value (i.e. Rs.5,000/- in this case) as commission and balance amount will be distributed to all the members. For e.g. if the bid amount is Rs.40,000/-, Rs.5,000/- is deducted and the balance Rs.35,000/- is distributed among the 25 members which will be Rs.1,400/-.
This amount shall be credited to account of all the members. While paying the next installment i.e. third installment each member has to pay Rs.2,600/- (Rs4,000 -Rs1,400). So, the total amount will be again Rs.1,00,000/- (2600 X 25 +1400 X 25). Say a member bearing No.5 has taken the chit during the second month, now during the third month the company and member bearing the serial No.5 are not eligible for bidding even though they pay the chit installment.
All the other members who are called non-prized subscribers are eligible for bidding. This procedure of bidding, distribution of dividend and payment of chit amount continues every month. Like this during the course of 25 months each member will take the chit amount once. The company earns commission of 5% of chit value every month during the course of chit which is the main income of the company.
As many number of groups the company conducts the commission earned proportionately increases. The main aim of the company is to enroll financially sound members, so that collection of chit installments will be smooth and the disbursement of the chit amount will be easy and in time.
BOARD OF DIRECTORS:
Totally there are 9 directors in the company with a Managing Director.
1. Mr. K.A.Prabhakara - Managing Director
2. Mr. B.Nagaraja - Director
3. Mr. K.N.Anantha Murthy - Director
4. Mr. M.N.Radhakrishna - Director
5. Mr. S.S.Harinath - Director
6. Mr. K.A.Ramnath - Director
7. Mr. C.N.Vijay Kumar - Director
8. Mr. S.V.Amarnath - Director
9. Mr. S.V.Satyanarayana Gupta - Director
BUSINESS OPERATIONS:
In chit business, the income increases, depending on the number of chit groups run by the company. On the other hand, risk increases with increase in the number of chit groups. The intelligence in the business is to select financially sound customers, so that the defaulters are less or nil.
Every time when a group is started, a set of good members are enrolled. The company is not in a hurry to start a chit group, unless all the members are selected and enrolled. The group will be started by doing so and the risk involved is minimized.
Secondly, when a member takes the chit, proper care should be taken in doing documentation with proper surity and securities towards the balance chit amount payable by the subscribers. In doing so, the legal aspects shall be taken care.
With all the above precautions and by running more number of chit groups the company earns more profits.
OBJECTIVES OF THE COMPANY
The main objectives pursued by the company on its incorporation are as under:-
i) To carry on chit fund business in all its branches and kinds but, not to carry on any business prohibited by the prize chit and money circulation scheme (banking) act, 1978.
ii) To carry in chit fund business as per chit fund act, 1982 read with the chit funds (Karnataka) rules 1983 and such other activities as may be provided under the said act as amended from time to time.
iii) To enter into agreement and contract, with Indian or foreign individuals, companies or other organizations for technical, financial or any other assistance for carrying out all or any of the objectives of the company.
iv) To advertise and adopt means of making known the business activities of the company in any as may be expedient.
v) To amalgamate with any company or companies having objects all together or in part similar to those of this company.
vi) To take over, approve, adopt or ratify all steps taken and comities made by the promoters for the proposed business of the company prior to its incorporation.
vii) To open accounts with any individual, firm or company or with any bank or banks and to pay into and withdraw monies from such account or accounts.
viii) To undertake and execute any trust, the undertaking where of may seem desirable either gratuitously or otherwise.
ix) To distribute any of the properties of the company amongst the members in specie or in kind consequent upon the winding of the company.
x) To improve, manage work, develop, alter, exchange, mortgage, lease, turn to account, abandon or otherwise deal with all or any part of the properties, rights and concessions of the company.
xi) The liability of the company is limited.
MARKET SHARE AND COMPETITORS:
Market for chit business in Bangalore is very vast. The market is of 2 types.
1. Enrolling the members who ever comes without seeing their credibility. However when the members take the chit, care is taken to take proper security/surety.
2. While enrolling the members itself, the financial background of the members is taken care, so that when the members take the chit, the company will not much worry about the members.
This company is selecting the members of second type. Further the company enrolls the members, not only financially sound members but the members will also be known to the directors personally or through their friends. By doing so market share is slightly narrowed, but the risks involved is reduced.
The competitors in this field are many. Even then since the company enrolls the members from the friends and relatives of the directors, afraid of competition does not exist. By giving good service i.e. payment of chit amount in time attracts customers. There by the customers bring in their friends and relatives for future groups.
Since the original customers will be good, they bring in their friends and relatives who also will be normally good. There by the company is not afraid of the competitors.
FUTURE PROSPECTS AND GROWTH OF THE COMPANY:
The company is about 13yrs old. During the initial period the company was running about 8 groups which got expanded to nearly 15 groups. As usual, in all businesses, the number of defaulters is reduced now and further numbers of groups have also increased.
By employing few marketing assistants, a search can be made to enroll new sound members. The assistants can also be used to lure many old customers to enroll again. This way business can be improved further and prospects for improvement in business are good.
DIFFERENT TYPES OF FORMS
The company uses different types of forms while conducting the chit business. Some of those are as under:
1. Chit agreement Form
2. Pronote
3. Consideration Receipt
4. Covering Letter and Undertaking by Surety
1) CHIT AGREEMENT FORM
This is an agreement between the promoter i.e. the company which conducts the chit and the subscriber who wants to become a member in the chit group. All the terms and conditions which are beneficial to both the company and the subscriber are enlisted in this form.
2) PRONOTE
This is a form of letter legally used for payment of money by any party. Here it is used for the balance of money payable by the subscriber to the company. This will contain all the details of chit group in which the subscriber is due to pay to the company.
3) CONSIDERATION RECEIPT
This is the receipt given by the subscriber to the company for having received the chit amount without which the pronote is not valid.
4) COVERING LETTER AND UNDERTAKING BY SURETY
This is the letter of undertaking by surety to the subscriber in which surety takes up the joint responsibility of the amount in the above pronote. By this the company has all the right to sue both subscriber and surety if the subscriber fails to pay the balance installments of the chit group.