• The biggest risk is misuse of pooled funds by promoters. The other is default by subscribers, affecting the promised fund distribution.
• Various state and central laws regulate only the registered chit funds. There is no redress if you fall prey to an unregistered fund.
• The ministry of corporate affairs has an exhaustive list of registered chit funds (there were 5,412 chitfund companies in India as on 31.12.2013 – www.mca.gov.in); however, as many chit funds get unlisted regularly, you may not be able to find the latest list. Do your research.
• Only invest in a chit fund if you are confident that you will be able to complete all the monthly contributions, or you may end up paying a penalty.
• The current laws offer little scope of recovery in case of a scam.