AML Laws and Regulations for Chit Fund Companies in India

Last Updated on: 24st August 2026 | Last Reviewed on: 24st August 2026

Key Takeaways at a Glance

Who is covered: chit fund companies that manage, conduct or supervise chits as foremen under the chit funds Act, 1982 are covered as reporting entities under the PMLA.
Why are they covered: a chit fund company is defined under section 2(1)(h) of the PMLA and is expressly included within the definition of a financial institution under section 2(1)(l). It therefore qualifies as a reporting entity under section 2(1)(wa), without requiring any separate notification or designation.
Governing laws: the PMLA, 2002 and the PML (Maintenance of Records) Rules, 2005; the Chit Funds Act, 1982; the general KYC baseline for reporting entities; the UAPA 1967 (Section 51A) and the WMD Act, 2005 (Section 12A).
Supervisor: The State Registrar of Chits in the state of registration, under the Chit Funds Act, 1982. There is no single central AML regulator for chit funds. Reports go to the Financial Intelligence Unit of India (FIU-IND); the Enforcement Directorate (ED) enforces the PMLA.
Core duties: customer identification and KYC of subscribers, beneficial owner verification, ongoing monitoring, cash and suspicious transaction reporting, five-year record keeping and sanctions screening.

This guide is general information on Indian law, not legal advice. For your company’s specific position, speak to a qualified AML professional.

Chit fund companies are reporting entities under the Prevention of Money-Laundering Act, 2002. A chit fund company is a company that manages, conducts or supervises chits, as the foreman, under the Chit Funds Act, 1982. Its AML, CFT and CPF duties flow from the PMLA, the PML (Maintenance of Records) Rules, 2005, the general KYC baseline for reporting entities, Section 51A of the UAPA, Section 12A of the WMD Act, and the FIU-IND reporting framework. Chits are a state subject, so a chit fund company is registered and supervised by the State Registrar of Chits, and there is no single central AML guideline for the sector; the company applies the PMLA and PMLR framework as a financial institution and files with FIU-IND.

The core instruments at a glance

Instrument	What it does for a chit fund company
PMLA, 2002	The principal AML statute. Names the chit fund company within the financial institution definition and creates the core duties of CDD, record keeping and reporting.
PML (Maintenance of Records) Rules, 2005	Rule made under the PMLA and provides operational procedure for following preventive measures and fulfilling the reporting entity duties.
Chit Funds Act, 1982	The Act under which chits are registered and supervised.
State Registrar of Chits	The state authority that registers and supervises chit fund companies in its state.
UAPA Section 51A and WMD Act Section 12A	Impose targeted financial sanctions for terrorism and proliferation financing.
FATF Recommendations	The international preventive measure standards for financial institutions that India’s framework is aligned with.

What Counts as a Chit Fund Company in India?

A chit is a scheme in which a group of subscribers contributes a fixed amount periodically to a common pool. At each instalment, the pooled amount is awarded to one subscriber through an auction, draw or another method permitted under the Chit Funds Act, 1982. Over the duration of the chit, the arrangement combines elements of savings and borrowing. A fund company acts as the foreman responsible for managing, conducting or supervising the chit. The PMLA adopts this definition and treats a chit fund company as a financial institution and, consequently, a reporting entity. This guide addresses registered chit fund companies while unregistered chits and illegal money-circulation schemes are a separate matter of law.

From an AML, CFT and CPF perspective, the principal risks arise from the collection of subscriptions and the payment of prize amounts. Cash subscriptions may be used to introduce illicit funds into a chit and obtain prize money with an apparently legitimate source. Multiple, benami or third-party subscriptions may also be used to layer funds or conceal the identity of the ultimate beneficiary. Unusual subscription patterns, large or unexplained contributions and the movement of prize money to unrelated persons may indicate attempts to conceal the source or ownership of funds. The AML framework therefore focuses on identifying subscribers and any beneficial owner behind them, on watching for cash subscriptions and unusual patterns, on screening against sanctions lists and reporting suspicious activity where required.

Are Chit Fund Companies Reporting Entities Under the PMLA?

Yes, chit fund companies are expressly covered as reporting entities under the Prevention of Money-Laundering Act, 2002. Section 2(1)(h) defines a chit fund company, and section 2(1)(l) specifically includes it within the definition of a financial institution. As a financial institution, a chit fund company is a reporting entity under section 2(1)(wa).

This places a chit fund company in the same broad category of reporting entities that file with FIU-IND as banks and other financial institutions, and within the wider AML laws and regulations for financial institutions in India. The obligations are calibrated to the size of the business, but the status is not optional.

Supervisory authority for chit fund companies in India

Chits are a state subject, so a chit fund company is registered and supervised by the State Registrar of Chits in the state where it conducts its services, under the Chit Funds Act, 1982 and the state chit rules. Hence, there is no single central authority that issues an AML guideline dedicated to chit fund companies. A chit fund company therefore applies the PMLA and the PML Rules directly as a financial institution, using the general KYC baseline for reporting entities, and works under the State Registrar for the conduct rules of the chit business itself.

Whatever the state of registration, the reports go to one place. A chit fund company files with the Financial Intelligence Unit – India, which receives, analyses and disseminates them, while the Enforcement Directorate investigates and prosecutes the offence of money laundering under the PMLA. In short, the State Registrar supervises the chit business, FIU-IND receives the intelligence, and the ED enforces the criminal law.

Onboarding clients without a documented due-diligence process?

AML India can put client due diligence, beneficial-ownership checks and suspicious-transaction reporting in place for your practice, keeping you audit-ready without slowing your engagements down.

AML Regulatory Requirements for Chit Fund Companies in India

The legal framework that governs a chit fund company is layered across the core legislation, the overarching obligations, the sectoral supervisor and its directions, the miscellaneous official reports, the international standards, and the allied laws.

The PMLA establishes the primary AML obligations, while the PML Rules set out the operational requirements. The Chit Funds Act 1982 and applicable state-level requirements provide the sector-specific framework, while the UAPA and WMD Act add counter terrorism and proliferation financing obligations. A risk-based approach runs throughout the framework, guiding how chit fund companies identify, assess and manage AML/CFT risks.

Core Legislation

The primary parliamentary Acts and rules that create the AML, CFT and CPF obligations are grouped into three categories.

AML Legislation

Prevention of Money-Laundering Act, 2002 (PMLA)

India’s principal legislation on preventing money-laundering risks and the source of a chit fund company’s reporting entity status. It defines the offence of money laundering and imposes the core obligations, including customer due diligence under Section 11A and record maintenance and reporting requirements under Section 12, which a chit fund company must apply across its chit business as a foreman. Given the cash-intensive nature of subscriptions and the payment of prize money, the key AML risks arise from the source of subscriptions, benami or multiple memberships, third-party payments and the destination of prize proceeds, which is where the Act is directly engaged.

The PML (Maintenance of Records) Rules, 2005 (PMLR)

The rules made under the PMLA, and the layer a chit fund company applies for day-to-day AML compliance. They prescribe reporting requirements and timelines under Rule 3 and Rule 8, require the appointment of a Principal Officer and Designated Director under Rule 7, and set out customer and beneficial owners due diligence requirements under Rule 9. They also govern record-keeping, policies and procedures development, the use of the central KYC records registry and valid identification documents of residents as well as non-residents.

The PMLR has been amended through 31 Gazette notifications and orders, set out below in a chronological manner.

The 31 PMLR Amendment Notifications, in Date Order:

Gazette notification and date	Key change or rule touched
G.S.R. 389(E), 24 May 2007	The first amendment to the 2005 Rules. It broadened the Rule 2 definitions of a suspicious transaction to take in dealings without economic rationale or bona fide purpose and those suggestive of terrorism financing, revised Rule 3 for cash dealings in forged or counterfeit currency, substituted Rule 8 on furnishing information to the Director, and eased submission of certified copies of documents from three to one under Rule 9.
G.S.R. 816(E), 12 November 2009	It inserted the non-profit organisation and Regulator definitions, restated the suspicious transaction, and required NPO receipts over Rupees 10 lakh to be reported. It fixed a ten-year as retention period under Rule 6 and revised Rule 9 to require beneficial owner identification, ongoing due diligence, a ban on anonymous accounts and a Client Identification Programme.
G.S.R. 76(E), 12 February 2010	Amended Rules 3, 4, 5, 7 and 9 to strengthen record keeping and the reporting references. Inserted the first Explanation in Rule 9(1A), which treats the beneficial owner as the natural person who ultimately owns or controls a client or on whose behalf a transaction is made.
G.S.R. 508(E), 16 June 2010	Revised Rules 2, 9 and 10, definitions, customer due diligence and record keeping, adjusting how a reporting entity identifies customers and the records it keeps, within the 2010 tightening of the CDD and records regime.
G.S.R. 980(E), 16 December 2010	Defined the Designated Officer and the small account, incorporating the NREGA job card and the Aadhaar letter into the officially valid documents in Rule 2, and added Rule 9(2A) on how small account is opened and monitored.
G.S.R. 481(E), 24 June 2011	Amended Rule 1 to shorten the long 2005 name to the Prevention of Money-Laundering (Maintenance of Records) Rules, the PMLR shorthand used since.
G.S.R. 576(E), 27 August 2013	Revised Rules 2 and 3 and inserted provisions after Rule 10, regarding the cash and suspicious transaction reporting duties and the record maintenance framework so they align the reporting obligations.
G.S.R. 288(E), 15 April 2015	Amended the definitions in Rule 2. As these definitions determine the scope of the operative provisions, the changes had implications across the wider framework.
G.S.R. 544(E), 7 July 2015	Revised Rules 2, 9, 10 and inserted Rule 9A on identification and verification of customer and record keeping, adjusted how a reporting entity identifies customers and the records it keeps, within a substantial 2015 overhaul of the CDD and records provisions.
G.S.R. 730(E), 22 September 2015	Added an explanation to Rule 2, allowing a marriage certificate to be used as supporting evidence for a subsequent name change reflected in an officially valid document.
G.S.R. 882(E), 18 November 2015	Extended the period under Rule 9A for the Government to establish the Central KYC Records Registry from 90 days to 180 days following the commencement of the 2015 amendments.
G.S.R. 347(E), 12 April 2017	Amended Rule 2 and inserted Rule 9B, folding the Central KYC Records Registry into the Rules, creating the duty to file customer KYC records centrally and the basis to reuse them, the structural addition behind today’s CKYCR.
G.S.R. 538(E), 1 June 2017	Revised Rules 2 and 9 to bring Aadhaar into customer identification officially valid documents list, prescribing Aadhaar-based identification and authentication for KYC, an approach the Supreme Court’s Aadhaar ruling later reshaped.
G.S.R. 1038(E), 21 August 2017	Amended the Rule 2 definitions, adjusting the defined terms that govern how the operative rules apply, among several definition updates in 2017.
G.S.R. 1318(E), 23 October 2017	Added a proviso allowing the acceptance of officially valid documents issued abroad for the identification and verification of foreign nationals under Rule 2.
G.S.R. 456(E), 16 May 2018	Inserted a clause in Rule 9 requiring sector-specific guidelines to be incorporated and directing all reporting entities to establish a Customer Due Diligence (CDD) programme.
G.S.R. 1078(E), 31 October 2018	Amended Rule 9 to extend the period for submitting a customer’s electronic CDD records from 3 days to 10 days.
G.S.R. 108(E), 13 February 2019	Revised Rules 2 and 9 on definitions and customer due diligence, after the legislative changes to Aadhaar use, adjusting the ways identification could be conducted.
G.S.R. 381(E), 28 May 2019	Amended Rule 9, sharpening the identification and verification process and the routes to confirm a customer’s identity, part of the post-Aadhaar reshaping of CDD.
G.S.R. 582(E), 19 August 2019	Revised Rules 2 and 9 and inserted annexure after Rule 11, definitions, customer due diligence and the supporting provisions on information and records, one of the broader 2019 updates.
G.S.R. 669(E), 18 September 2019	Amended Rules 2 and 9 adjusting the definitions and the customer due diligence process within the 2019 run of CDD amendments.
G.S.R. 840(E), 13 November 2019	Revised Rule 9 with additional changes to the identification and verification requirements, bringing the 2019 run of CDD changes to a close.
G.S.R. 228(E), 31 March 2020	Extended the operational timeline for small accounts through 2020 and for any further period notified by the Central Government.
G.S.R. 251(E), 13 April 2020	Revised the reporting deadline under Rule 8 for submitting transaction reports to FIU-IND.
G.S.R. 254(E), 16 April 2020	A further revision under Rule 8 reporting timeline for furnishing transaction reports to the FIU-IND.
G.S.R. 798(E), 28 December 2020	It inserted Dealers in Precious Metals and Stones and Real estate Agents under DNFBPs as reporting entities with particular triggers and their supervisory authority.
G.S.R. 575(E), 13 July 2022	Provided the International Financial Services Centre definition with a tailored beneficial owner provision for IFSC entities and added an IFSC proviso to Rule 9A on the CKYCR, aligning the Rules with the GIFT City regime.
S.O. 1074(E), 7 March 2023	A major amendment folding in definitions of politically exposed persons, groups and non-profit organisations, added a duty for group-wide AML policies under Rule 3A and reduced the company beneficial ownership threshold from 25 to 10 per cent, with a matching change to Rule 9(3)(e), relevant where a corporate subscriber joins a chit.
G.S.R. 652(E), 4 September 2023	It placed the Principal Officer at management level, cut the partnership beneficial ownership threshold from 15 to 10 per cent, added an Explanation of control, required trustees to disclose their status, and brought the results of any Rule 3 and Rule 9 analysis into the records kept.
G.S.R. 745(E), 17 October 2023	Revised Rules 2, 3, 8 and 9 together, covering definitions, the reporting duties and customer due diligence, adjusting several operative provisions together to close the 2023 changes.
G.S.R. 419(E), 19 July 2024	Amended Rule 9(1C) on the KYC Identifier and set a timeline of seven days to update a CKYCR record after any change, added a duty to fetch the updated record, and revised Rule 9A(2)(g) on filing, retrieving and using registry records, adjusting how current central KYC data is kept.

The PML (Manner of Receiving the Records Authenticated Outside India) Rules, 2005

Rules formatted under the PMLA for accepting customer records authenticated outside India, relevant where a chit fund company admits a non-resident subscriber and must rely upon identity documents executed and certified abroad by the relevant certifying authority.

CFT Legislation

The Unlawful Activities (Prevention) Act, 1967 (UAPA)

India’s principal counter terrorism statute. It provides functions and duties for reporting entities to prevent terrorism financing. Section 51A of the Act requires a chit fund company to screen subscribers and beneficial owners against the designated lists and to freeze, without delay, the funds of listed persons and entities, whatever the value of the chit.

Procedure for implementation of Section 51A of the UAPA (order dated 2 February 2021; corrigendum dated 15 March 2023 and 29 August 2023)

The procedure a chit fund company follows to implement Section 51A requirements of sanctions screening, reporting and freezing measures into the institution’s controls, translating the statutory duty into an operational process.

CPF Legislation

The Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 (WMD Act)

India’s counter-proliferation financing statute. Section 12A provides the legal basis for implementing targeted financial sanctions relating to the financing of weapons of mass destruction and their delivery systems. The requirements are relevant to chit fund companies because chit arrangements can be used to pool and distribute funds in ways that may obscure their source, ownership or destination, including where funds are linked to designated persons or entities.

Procedure for implementation of Section 12A of the WMD Act (dated 1 September 2023)

The procedure for applying Section 12A mirrors the Section 51A screening, reporting and freezing measures, applied by a chit fund company alongside its terrorism list screening.

The WMD and their Delivery Systems (Prohibition of Unlawful Activities) Implementation Rules, 2016

Rules implementing the WMD Act and supporting the proliferation financing controls according to which a chit fund company must operate.

Not registered with FIU-IND yet, or unsure whether you have to be?

AML India can confirm whether your firm qualifies as a reporting entity under the PMLA, complete your goAML registration and appoint your principal officer and designated director.

Overarching

The shared obligations that a chit fund company relies upon as a reporting entity.

CERSAI Central KYC Records Registry (CKYCR) Operating Guidelines, 2025

The Central KYC Records Registry stores customer KYC records centrally. A chit fund company uploads customer KYC information to it and may retrieve and reuse the existing record, helping maintain consistency and reduce duplication. The guidelines provide the functions and obligations of the central registry as well as the reporting entities, supporting accurate customer identity and beneficial ownership information at onboarding, which is what makes the registry useful.

FINnet 2.0 Reporting Formats (2024) and the FINGate 2.0 User Manuals

The FIU-IND reporting platform and its current reporting formats and timeline, through which a chit fund company enrols and files the prescribed reports, with the FINGate 2.0 user manual covering enrolment, request response and reporting requirements procedure.

Section 11A Aadhaar Authentication Procedure for Reporting Entities (9 May 2019)

The procedure for reporting entities other than banking companies to apply for usage of Aadhaar-based authentication services, relevant where a chit fund company verifies an individual’s identity through Aadhaar.

Sectoral

The supervisor and its directions. The general oversight of the companies is with the state chit registrars.

State Registrars of Chits

Registration and conduct of chits under the Chit Funds Act, 1982

The Chit Funds Act, 1982 governs the registration and operation of chit schemes. The relevant state registrar of chits registers the chit, authorises its commencement and supervises the foreman’s compliance with the Act and applicable state rules. It regulates the conduct of the chit business, including subscriber contributions, auctions, prize payments and record-keeping. This state-level framework governs the operation of the chit, while the PMLA and PML Rules separately impose AML, CFT and CPF obligations on chit fund companies as reporting entities. The Act does not replace these obligations.

The PMLA and PMLR framework applies as a financial institution

These instruments set the core requirements, including customer due diligence, beneficial owner identification, transaction monitoring, record-keeping, prescribed report submission and the implementation of applicable sanctions obligations. As there is no separate central AML guideline exclusively for chit fund companies, these requirements are applied directly to the company’s chit activities, including subscriber onboarding, subscription collection and prize payments.

Reserve Bank of India NBFC- Know Your Customer Directions, 2025

The RBI KYC Directions, 2025 apply to chit fund companies only when they fall within the RBI-regulated NBFC framework. A company, if it holds an RBI certificate of registration, is listed as an RBI-regulated NBFC or is otherwise covered by the RBI’s applicable registration and regulatory framework, and whether any exemption applies is to comply with the NBFC- KYC Directions 2025 requirements.

Where a chit fund company is not within the RBI-regulated NBFC framework, the Directions do not apply. Its AML obligations arise directly under the PMLA and PML Rules, while its chit operations are governed by the Chit Funds Act, 1982 and the applicable State framework.

Miscellaneous

Official reports and guidance that sit outside the binding rulebook but shape how a chit fund company reads its risk and its duties.

FIU-IND Annual Report 2024-25

The national FIU’s annual account of the reports it receives, analyses and disseminates, providing useful insight into reporting volumes, trends and priorities across reporting entity sectors.

Directorate of Enforcement Annual Report 2025-26

The Enforcement Directorate’s annual report on investigations, provisional attachments and prosecutions under the PMLA, showing how the criminal enforcement end of the framework is used.

FIU-IND and its Core Functions and FAQs

A plain-language overview of FIU-IND’s role, functions and reporting processes, providing a practical reference for a chit fund company’s reporting and compliance responsibilities.

MHA National Counter Terrorism Policy and Strategy

The Ministry of Home Affairs statement of national counter terrorism policy, which frames the CFT duties that Section 51A places on a chit fund company.

International Standards

The global benchmarks India is measured against, and the sources a chit fund company can use to calibrate a risk-based approach.

FATF Recommendations

The international standards for AML, CFT and CPF. Recommendations 9 to 23 set the preventive measures for financial institutions, including customer due diligence, beneficial owner identification, suspicious transaction reporting, etc. Recommendation 6, updated by FATF in June 2026, addresses targeted financial sanctions. These standards inform India’s AML framework and provide the international basis for the controls applied by chit fund companies under the PMLA and PML Rules.

FATF Mutual Evaluation Report on India, 2024 (and Executive Summary)

The peer assessment of India’s AML and CFT framework, examining how effectively the country’s preventive measures, supervision and risk-based controls operate across the financial sector in practice.

Basel Committee, Sound Management of Risks Related to Money Laundering and Financing of Terrorism (2020)

The Basel Committee guidance on managing ML and TF risk, a benchmark for the risk-based approach and group-wide controls that a chit fund company can read across to its own risk management.

FATF Risk-Based Approach Guidance for the Banking Sector (2014)

FATF sector guidance on applying the risk-based approach in banking and financial institutions, useful to a chit fund company in shaping its customer due diligence and monitoring.

Allied Laws

The supporting statute that defines each institution’s own mandate, predicate offences and enforcement machinery around money laundering.

The allied law that most directly bears on a chit fund company’s risk is the Chit Funds Act, 1982, under which chits are registered and regulated, and the foreman is subject to the supervision of the relevant state authority. The Act governs the conduct of administration of chits, including the collection of subscriber contributions, the management of the chit fund, and the payment of prize amounts. It broadly provides operational and regulatory context within which chit fund companies must apply AML obligations.

Alongside it, a wider set of offence and enforcement laws shapes the money laundering risks that may arise through a chit fund company’s operation. These include the Companies Act, 2013, the Bharatiya Nyaya Sanhita, 2023 and the Bharatiya Nagarik Suraksha Sanhita, 2023, the Foreign Exchange Management Act, 1999, the Benami Transactions (Prohibition) Act, 1988, the Prevention of Corruption Act, 1988, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Fugitive Economic Offenders Act, 2018, the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, the Foreign Contribution (Regulation) Act, 2010, the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA), the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (SAFEMA), the Arms Act, 1959, the Chemical Weapons Convention Act, 2000 and the Central Vigilance Commission Act, 2003.

Core AML/CFT/CPF Obligations for Chit Fund Companies in India

Within the applicable framework, the regulations require a chit fund company to do the following. This article keeps each at the level required by law; a compliance requirements guide explains how to do each.

Register with FIU-IND. Enrol on the FINnet 2.0 / FINGate 2.0 portal so the institution can file its reports.
Appoint officers. Appoint a Designated Director and a management-level Principal Officer under Rule 7 of the PMLR. The same person cannot hold both roles, and both are to be informed to FIU-IND and the state registrar.
Conduct the internal risk assessment. Run an ML and TF risk assessment across customers, products, channels and geographies, document it, and take its outcome to the board, as the Rules require.
Document AML policy, controls and procedures. Adopt a board-approved policy that turns the risk assessment into the institution’s operating procedures.
Customer identification and CDD. Identify and verify every customer and the beneficial owner (a controlling interest of more than 10 per cent for a company or partnership, and more than 15 per cent for an unincorporated association or body of individuals, with the separate trust test), with enhanced due diligence for politically exposed persons and high-risk customers, under Section 11A of the PMLA, Rule 9 of the PMLR. Given the cash-intensive nature of subscriptions, identifying subscribers and any beneficial owners, and watching for cash subscriptions, multiple or benami memberships and unusual patterns, are central.
Ongoing monitoring and periodic updates. Monitor transactions on an ongoing basis, and refresh KYC at least once every 2, 8 and 10 years for high, medium and low-risk customers respectively. Review each customer’s risk categorisation at least once every six months.
Sanctions screening. Screen customers and beneficial owners against the designated lists under Section 51A of the UAPA and Section 12A of the WMD Act, and freeze and report any match, verifying the relevant UNSC and domestic lists daily.
Regulatory reporting. File cash transaction reports for cash above Rupees 10 lakh, suspicious transaction reports of any value, counterfeit currency reports, and, where a chit involves a cross-border element, cross-border wire transfer reports of Rupees 5 lakh or more where applicable, under Rule 3 and Rule 8 of the PMLR. Cash and related reports are filed monthly, by the 15th day of the succeeding month; suspicious transaction reports are filed promptly, through FINnet 2.0.
Record management, CKYCR and FINnet 2.0. Keep transaction records for five years from the date of the transaction, and identity records, account files and correspondence for five years after the relationship ends, under Section 12 of the PMLA. Upload customer KYC records to the CKYCR under Rule 9A, and file all prescribed reports through FINnet 2.0.
Training and awareness. Train staff by role to apply the controls and recognise red flags in cash subscriptions and prize money payouts.
Independent testing and audit. Test the programme through internal audit, compliance assurance or independent review, and close every finding.
Run group-wide controls. Where the institution has subsidiaries, apply AML and CFT programmes at group level, including for branches and majority-owned subsidiaries.

What This Article Does Not Cover

This article explains the legal and regulatory framework that applies to chit fund companies. It does not provide a control-by-control compliance manual, nor does it restate each institution’s own establishing statute or its developmental mandate, except where they align with the AML obligations. For implementation, a chit fund company shall separately document customer acceptance, KYC and CDD procedures, beneficial owner verification, sanctions screening, transaction monitoring, suspicious transaction reporting, staff training, audit testing and board consent. Those controls are the subject of the companion compliance guide.

To see how the chit fund company framework fits within the sector, see AML laws and regulations for financial institutions in India, and to place it within the national picture, see AML laws and regulations in India.

From Regulation to Compliance: Your Next Step

Knowing the law is an efficient starting point, but these obligations only protect an institution when they are translated into an effective compliance programme of risk assessment, policy and procedure, customer due diligence, monitoring, screening, reporting, training and independent audit. For a chit fund company, customer identification at the point of exchange or remittance payout, monitoring for structuring, and sanctions screening are the controls that matter most. Understanding the stages of money laundering and how the sanctions screening process works is a useful insight.

Want to confirm the 2025 directions for your institution?

AML India can walk you through the state specific and RBI chit fund company KYC Directions and build a proportionate programme for a chit business.

Frequently Asked Questions

What are the chit fund companies?

A chit fund company is a company that manages or conducts chits as a foreman, under the Chit Funds Act, 1982. In a chit, subscribers contribute fixed amounts to a common pool, which is periodically awarded to one subscriber through an auction or draw. Chit fund companies are expressly included within the PMLA’s definition of financial institution and are therefore reporting entities.

Are chit fund companies reporting entities under the PMLA?

Yes. Chit fund companies are reporting entities under section 2(1)(wa) of the PMLA because it is a financial institution within section 2(1)(l). No separate notification is needed; a chit fund company is inside the regime by virtue of its services.

Does RBI direction apply to a chit fund company?

Not automatically. The directions apply only where a chit fund company falls within the RBI-regulated NBFC framework and is not exempt. Its status should be verified through its RBI regulatory records. Otherwise, its AML obligations arise under the PMLA, PMLR and state-published notifications while its chit operations are governed by the Chit Funds Act, 1982.

Does chit fund companies carry out retail KYC?

Yes, A chit fund company deals directly with individual subscribers, so identifying each subscriber, watching for cash subscriptions and multiple or benami memberships, and screening against sanctions lists are the front-line controls. Where a subscriber is a company or acts for another, beneficial owner identification also applies.

What must a chit fund company report to FIU-IND?

Cash transaction reports for cash above Rupees 10 lakh, suspicious transaction reports of any value, counterfeit currency reports, and, where a chit involves a cross-border element, cross-border wire transfer reports of Rupees 5 lakh or more where applicable. Cash and related reports are filed monthly by the 15th of the succeeding month, and suspicious transaction reports promptly, through FINnet 2.0.

Do the sanctions rules apply to chit fund companies?

Yes. The screening duties under Section 51A of the UAPA and Section 12A of the WMD Act apply to every chit fund company. A chit fund company screens customers and beneficial owners against the United Nations and domestic designated lists and freezes and reports any match.

Official sources and review

Last reviewed: July 2026. This guide is grounded in the following primary official sources, linked to their official source where available.

Why work with AML India

AML India helps chit fund companies meet their PMLA and state-specific as well as RBI obligations, from risk assessment and policy development to CDD, screening, monitoring, reporting, training and independent audit.

Industries we serve: Chit Fund Companies, NBFCs, Housing Finance, Mortgage Guarantee and Asset Reconstruction Companies, Insurers, Payment System Operators and Aggregators, banks, DNFBPs, Securities Intermediaries and IFSC and GIFT City entities.

About the Author

Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.

Reach Out to Pathik