This page is informational and is not legal advice. It describes rules, orders and rulings as published or reported on the dates shown; read the primary text before relying on any of it.
At a glance
- Pigmy or daily deposit
- A deposit account with a bank, society or Nidhi company
- Chit
- A subscription to a rotating fund, governed by the Chit Funds Act, 1982
- Who supervises the chit
- The Registrar of Chits appointed by the State Government
- Deposit insurance
- Applies to bank deposits only; a chit is not a deposit
- Basis
- The Act as published, read 17 September 2026, and the institution pages in our directory
A collector at the door may offer either, and the two can look identical from a doorstep: small amounts, paid regularly, to someone who calls on you. They are not the same kind of arrangement, and the difference is not a matter of degree.
A pigmy or daily deposit is a deposit. You hand money to an institution, it owes the money back, and it pays interest. What protects you depends on what the institution is, which is the subject of most of this site.
A chit is a subscription to a fund you take turns drawing from. The Chit Funds Act, 1982 defines it as a transaction where a specified number of people each subscribe by periodical instalments over a definite period, and each subscriber in turn, "as determined by lot or by auction of by tender", is entitled to the prize amount. Nobody is holding your deposit. The pool is paying out in rotation.
The comparison that matters
| Pigmy / daily deposit | Chit | |
|---|---|---|
| What you are | A depositor | A subscriber |
| What you get, and when | Your balance with interest, at maturity | The prize amount, once, in the round you win; you keep paying until the chit ends |
| Governing law | Banking Regulation Act for banks; state co-operative law for societies | The Chit Funds Act, 1982 |
| Who supervises | RBI for banks; Registrar of Co-operative Societies for societies | The Registrar of Chits appointed by the State Government |
| Before it may start | An institution needs its licence or registration | Previous sanction of the State Government, and registration in that State |
| Protection of the money | Deposit insurance up to ₹5,00,000 at an insured bank; none at a society | No insurance; the foreman must deposit an amount equal to the chit amount in an approved bank |
| What the operator earns | Agent commission, usually 2.5% to 3% of collections | Foreman's commission, capped by statute at 5% of the chit amount |
| Your return | An interest rate, stated or not | Not a rate at all: what you gain or lose depends on the discounts bid in each round |
What the Act actually requires of a chit
Three requirements have no equivalent on the deposit side, and they are the reason a registered chit is not the same as an informal collection:
- Sanction, then registration. No chit may be commenced or conducted without the previous sanction of the State Government in whose jurisdiction it runs, and unless it is registered in that State. A sanction lapses if the chit is not registered within twelve months.
- The foreman's own money first. Before applying for sanction, the foreman must deposit in an approved bank an amount equal to the chit amount, held in the Registrar's name. The operator's capital stands behind the pool.
- A capped commission. The foreman is entitled to a commission "not exceeding five per cent. of the chit amount" as fixed in the chit agreement. Compare the daily-deposit side, where no national cap exists and one state's order on agent commission was set at 2.5%, then raised: our guide on pigmy agent commission sets out who fixes it and who bears it.
The naming test, written into the law
Section 11 is unusually useful for a reader standing at a door. A person carrying on chit business must use the word "chit", "chit fund", "chitty" or "kuri" as part of their name, and a person not carrying on chit business may not use any of those words.
So the name is evidence. A collector from something called a chitty or kuri is offering, or should be offering, a registered chit; ask for the registration and the State that sanctioned it. A collector from a bank, patpedhi or credit society is offering a deposit, and the question becomes the one our checklist asks: a bank, or a society?
Where the risk sits, in each
For a deposit, the risk is the institution's solvency, and the answer is whether it is an insured bank: ₹5,00,000 per depositor at a bank, nothing at a society.
For a chit, the risk is the conduct of the chit itself: whether it was sanctioned and registered, whether the foreman gave the security, and whether subscribers keep paying after they have taken their prize. The Act's machinery is registration and a Registrar, not insurance. An unregistered collection calling itself a chit has none of that machinery, and a scheme accepting deposits without authority is what the unregulated deposit-schemes law is aimed at.
What this page does not say
It does not say which is better. They answer different needs: a pigmy deposit accumulates and returns your own money with interest; a chit gives one subscriber a lump sum early, at a discount the others share. A household that needs a lump sum in eight months and a household saving towards a distant purchase are not choosing between two versions of the same product.
What we could not establish
- How often the two are offered by the same collector, which nothing we have read measures.
- The state rules made under the Act, which set forms, fees and the Registrar's procedures and differ between states. We have read the central Act, not each state's rules.
- Whether the sanction and registration requirements are observed in practice in any particular place. The Act states them; compliance is a separate question we have not measured.
- The current text on the Legislative Department's own portal. India Code refused automated access on 17 September 2026, so the copy read was the central-Acts text published by the Telangana High Court. Anyone relying on a specific provision should confirm it against India Code directly.
Questions
- Is a chit fund the same as a pigmy deposit?
- No. A pigmy or daily deposit is money you deposit with an institution, which owes it back with interest. A chit is a subscription: a fixed number of people each pay instalments, and in every round one of them takes the pooled prize amount, decided by lot, auction or tender. You are not a depositor in a chit; you are a subscriber to a fund that pays out in turn.
- Is a chit insured like a bank deposit?
- No. Deposit insurance covers deposits at insured banks. A chit is not a deposit and no insurance arises. What the Chit Funds Act requires instead is that the foreman deposit an amount equal to the chit amount in an approved bank before sanction, and that the chit be sanctioned by the State Government and registered.
- How can I tell which one is being offered at my door?
- The law gives a test. A chit business must use the word chit, chit fund, chitty or kuri as part of its name, and nobody else may use those words. If the collector's institution does not carry one of those words, it is not running a registered chit. Ask which it is, and ask for the registration.