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3 12 AURIGA ACCOUNTING PRIVATE LIMITED

Nidhi companies in India are restricted to engaging in only a specified range of activities,  Insurance investing primarily revolving around borrowing and lending within their members. They cannot operate in businesses such as chit funds, higher purchase, insurance, or make investments. The primary focus of Nidhi companies is fostering mutual benefit among members through savings and loans. Engaging in activities beyond the defined scope may result in regulatory non-compliance. It’s essential for Nidhi companies to adhere strictly to the prescribed activities outlined by the regulatory authoritiesVisitofficialwebsite

Restrictions on Business Activities:

Nidhi Companies are subject to specific regulatory restrictions and guidelines that are designed to maintain their focus on promoting thrift and savings within their membership base. While they can engage in certain financial activities, there are limitations on the scope of their operations. Let’s explore whether Nidhi Companies can operate in businesses other than the core activities listed above.

1. Chit Fund Activities:

Chit funds are financial arrangements where a group of individuals contribute money periodically to create a fund from which members take turns to receive a lump sum payout. In India, chit fund activities are regulated by the Chit Funds Act, 1982. Nidhi Companies, however, are not authorized to engage in chit fund activities. Their core operations focus on accepting deposits and providing loans to members, and chit fund activities are beyond the scope of their primary objectives.

2. Hire Purchase or Asset Financing:

Hire purchase involves the sale of goods where the buyer pays for the asset in installments and gains ownership upon the completion of payments. Nidhi Companies are not typically authorized to engage in hire purchase activities. Their lending activities are primarily focused on providing unsecured loans to their members for purposes like business development, housing, and education. Engaging in hire purchase would constitute a deviation from their core objectives.

3. Insurance Activities:

Insurance activities are regulated by the Insurance Regulatory and Development Authority of India (IRDAI). Nidhi Companies are not allowed to engage in insurance activities, as these activities require a separate and distinct set of licenses and regulatory compliance. The core purpose of Nidhi Companies is to provide access to credit and promote thrift among members, and offering insurance services is not in alignment with these objectives.

4. Investment Activities:

Nidhi Companies are permitted to invest their funds, but there are limitations and restrictions on where and how they can invest. The permissible investment avenues are typically defined in the Nidhi Rules, 2014, and may include investments in government securities, fixed deposits with scheduled commercial banks, and other approved investments. They are not allowed to engage in speculative or high-risk investments.

Is Nidhi Company a Chit Fund

A Nidhi Company is an NBFC that can only lend money or accept deposits, whereas a Chit Fund is also a committee like a Nidhi Company but only accepts payments made in instalments over a set period of time by its members. This is the main distinction between the two.

Where can Nidhi Company invest

Nidhi cannot offer investments or products not regulated by the Securities and Exchange Board of India (SEBI). Nidhi cannot offer any loans that the RBI does not sanction. Nidhi cannot provide financial services to unlicensed entities or individuals. Nidhi cannot provide financial products or services outside of India.

What are the limitations of Nidhi Company

Restrictions on the Nidhi Company

A Nidhi firm shouldn’t operate in the fields of insurance, leasing finance, hire purchase, chit funds, or hire purchase. It is improper for a Nidhi Company to issue debentures or preference shares. Any member of a Nidhi Company should not have a current account opened for them.

Can Nidhi Company do microfinance

Nidhi Company is not permitted to do the Micro Finance business in India. Micro Finance credit is a kind of business that has been specially assigned to the Non-Banking Financial Companies (NBFCs) with the status of MFI and with a minimum net owned fund of 5 crore rupees

What is the difference between Nidhi Companies and chit funds

A Nidhi company operates similarly to an NBFC, allowing its members to make deposits (perhaps on a recurrent basis) and issue loans. A committee that permits its members to contribute predefined monthly installments for a predetermined duration is known as a Chit Fund

How to operate Nidhi Company

INSURANCE INVESTING NIDHI COMPANY CHITFUND
  1. Step 1: Applying for DIN and DSC. 
  2. Step 2: Name Approval. 
  3. Step 3: MoA & AoA. 
  4. Step 4: Certificate of Incorporation (CIN).
  5. Step 5: PAN, TAN and Bank Account.

What is the difference between Nidhi and NBFC

Nidhi Company does not need RBI clearance before starting its lending activity, whereas NBFCs must first obtain RBI approval before starting their operations. To start their company, NBFC must first obtain RBI clearance. Opening a Current Account – The government forbids Nidhi Companies from opening a Current Account.

What is the minimum capital of Nidhi Company

Rs.10 lakh
 
Nidhi Company is registered under the provisions prescribed in the Companies Act, 2013. The only objective of forming a Nidhi Company is to cultivate the habit of thrift and savings amongst its members. The minimum capital requirement to start a Nidhi Company is Rs. 10 lakh (Increased via Nidhi (Amendment) Rules, 2022

What is the rule 3 of Nidhi rules

Rule 3A provides that the Nidhi Company, within one year from the date of incorporation or the extended time file NDH – 4. On receipt of the said form the Central Government, if the company meets all the requirements of the provisions relating to Nidhi will declare the company as Nidhi Company through notification.

Key Regulatory Objectives:

The regulatory restrictions on Nidhi Companies serve several key objectives:

  1. Protecting Member Interests: The restrictions are in place to ensure that the primary focus of Nidhi Companies remains on promoting thrift and savings among their members and providing access to credit for their benefit. This protects the interests of the members who rely on these institutions for financial services.

  2. Financial Stability: By limiting the scope of their activities, regulators aim to maintain the financial stability and integrity of Nidhi Companies. Deviations from their core objectives could introduce risks that might threaten the stability of these institutions.

  3. Transparency and Accountability: By focusing on a specific set of activities, Nidhi Companies can maintain transparency and accountability in their operations. This is critical for building trust among members and regulatory authorities.

  4. Consumer Protection: The restrictions help prevent Nidhi Companies from engaging in activities that may be speculative or pose a risk to their members’ savings and investments. This is in line with consumer protection objectives.

Exceptional Cases and Regulatory Approvals:

While Nidhi Companies are primarily restricted from engaging in the businesses mentioned above, there may be exceptional cases where they seek regulatory approvals or exemptions to undertake specific activities. In such cases, they would need to provide a compelling justification for why the proposed activity aligns with their core objectives and would not jeopardize the interests of their members.

What is the maximum number of directors in Nidhi Company

This company is formed with a motto to lend and borrow money within its members and it is very easy to form as a company. Eligibility to form a Nidhi Company: It requires at least 200 members in a year to get its Nidhi Company status. They also require 3 directors minimum and maximum should not exceed beyond 15.

Is Nidhi Company a Chit Fund

A Nidhi Company is an NBFC that can only lend money or accept deposits, whereas a Chit Fund is also a committee like a Nidhi Company but only accepts payments made in instalments over a set period of time by its members. This is the main distinction between the two.

Conclusion:

Nidhi Companies in India are subject to specific regulatory restrictions that define the scope of their activities. These restrictions are designed to ensure that they remain focused on promoting thrift, savings, and mutual benefit among their members. Businesses such as chit fund, hire purchase, insurance, and speculative investments are typically beyond the scope of their core objectives. Nidhi Companies must actively manage their operations within these constraints to continue serving their members effectively and responsibly while adhering to the regulatory framework.

How auriga accounting help you in.

Auriga Accounting or a similar financial consulting firm can provide assistance to businesses looking to engage in financial activities such as chit fund, hire purchase, insurance, and investment, including Nidhi Companies. Here’s how such a firm can help businesses navigate these specific financial activities:

1. Chit Fund Activities:

Auriga Accounting can assist a business, including Nidhi Companies, in setting up and managing chit fund activities, provided they comply with the regulatory framework established by the Chit Funds Act, 1982. Here’s how they can help:

  • Regulatory Compliance: Ensure that the business adheres to the regulatory requirements for chit fund activities, including registration, documentation, and reporting.

  • Operational Setup: Help establish the infrastructure and operational processes required for chit fund activities, including member recruitment, auctions, and disbursements.

  • Risk Management: Develop risk management strategies to safeguard the interests of members participating in the chit fund and ensure compliance with financial regulations.

  • Record Keeping: Assist in maintaining accurate records, including minutes of chit fund meetings and financial transactions.

2. Hire Purchase Activities:

Auriga Accounting can guide businesses, including Nidhi Companies, on entering the hire purchase or asset financing sector. Here’s how they can provide support:

  • Regulatory Navigation: Help the business understand the regulatory framework governing hire purchase and the licensing requirements for operating in this sector.

  • Financial Analysis: Conduct financial assessments to determine the feasibility and profitability of hire purchase activities, helping businesses make informed decisions.

  • Loan Structuring: Assist in structuring hire purchase agreements, including pricing, repayment schedules, and interest rates.

  • Risk Mitigation: Develop risk mitigation strategies to manage default risks and legal implications associated with hire purchase.

  • Compliance Reporting: Ensure that the business complies with all legal and financial reporting requirements related to hire purchase.

3. Insurance Activities:

For businesses interested in offering insurance services, Auriga Accounting can provide valuable assistance:

  • Regulatory Compliance: Help the business navigate the complex regulatory framework governed by the Insurance Regulatory and Development Authority of India (IRDAI). This includes obtaining the necessary licenses and approvals.

  • Product Development: Assist in designing insurance products that align with the business’s objectives and member needs.

  • Underwriting and Claims: Develop processes for underwriting insurance policies and managing claims effectively.

  • Financial Management: Help manage insurance premiums, investments, and claims payouts to maintain financial stability.

  • Compliance Audits: Conduct regular audits to ensure compliance with insurance regulations.

4. Investment Activities:

Auriga Accounting can support businesses, including Nidhi Companies, in making prudent investments:

  • Investment Strategy: Assist in developing an investment strategy that aligns with the business’s financial goals and risk tolerance.

  • Portfolio Diversification: Ensure that the business maintains a well-diversified investment portfolio, including government securities, fixed deposits, and other approved instruments.

  • Risk Assessment: Conduct risk assessments for potential investments to mitigate losses and preserve capital.

  • Regulatory Compliance: Help the business comply with regulations governing investment activities, including reporting and documentation.

  • Investment Audits: Conduct regular investment audits to ensure compliance and assess the performance of the investment portfolio.