Following a recent scam involving, Kolkata-based Sharada Group, the reputation of the entire chit fund industry has been tainted in the state and in the entire country.

The industry in India, which as more than 10,000 registered chit funds with an aggregate turnover of Rs 30,000 crore, has been affected with the fake schemes being pitched as chit funds. There is a huge trust deficit in the minds of the retail investors when it comes to chit funds. The chit fund industry is governed by Chit Fund Act 40/1982 and is regulated by state governments with differing rules across the country.

The Reserve Bank of India acts as the prime regulator for the industry and state level Registrar of Chits/The Inspector General of Registration look after implementation of the regulations. T S Sivaramakrishnan, general secretary, All India Association of Chit Funds said that there is a misconception in the market that deposit schemes are same as chit funds and this is affecting investor confidence on chit funds in the country.

"After the scam started being reported as one pertaining to chit funds, we have started seeing increasing participation in auctions. Several small and medium chit funds have reported investors seeking early auctioning, probably fearing loss of deposits," he said.