With the rising state of economy, it is the middle and lower middle class that are prone to bear the brunt of a financial burden. In such a situation, family breadwinners find it extremely difficult to save since most investment mechanisms cater to larger amounts. Savings in bank provide little scope for growth. Nidhi companies in India provide the easiest and most effective solutions for investment and savings with wide scope and potential for monetary growth.
Concept of Nidhi company
Nidhi Companies in India were created for cultivating the habit of small savings targeted at the lower and middle class. Its investment structure consists of realigning funds within a growing group of members who benefit from returns at fixed durations. Thus the contributions of funds generated in Nidhi investments are realized from its members (shareholders). Nidhi companies are minute when compared to the banking sector and promotes the cultivation of savings amongst a group of people.
Primary Features Of Nidhi Company
- Promotes small savings among middle and lower middle class
- Accepts term deposits for timely returns
- Easy source of loan to members against collateral
- Effective means of savings and loans with minimum documentation
- Secured means of investment due to rigid membership structure
The primary object of Nidhi companies is investment deposits and loans applicable to members only. Loans are provided to members against collateral in form of jewellery and mortgage of property.
Advantages of Nidhi based investing
Nidhi investments play an important role in helping the middle and lower middle classes by providing easy financial services with minimum formalities. As the minimum eligibility criteria for loans and investments are out of reach of small wage earners, Nidhi companies provide a relief and should be allowed to grow under Government supervision.
What makes Nidhi companies in India an attractive source of investment and loans is the fact that business is affected only between members? There is no scope for external involvement also it is not governed by any trusts or committees. It is an investment feature owned by the investors themselves. Members are thus governing body of Nidhi funds.
Nidhi investments and activities are regulated by the provisions of the Companies Act in force. They are categorized under a distinct class of NBFCs and hence fall under the purview of RBI directives governing investments and financial activity. This includes deposit acceptance activities by a Nidhi company. In fact RBI has been constantly monitoring directives applicable to Nidhis. At present, the Nidhis are barred from payment of brokerage on deposits and marketing activity promoting the same.
The RBI review committee
The RBI review Committee recommended that any company engaging in a Nidhi based business as defined above should have the word ‘Nidhi’ added to the company’s name. Existing companies that function similar to the activities of a Nidhi company as defined by the RBI directives will also have to add the word ‘Nidhi’ after their registered name. The reason for such a directive is to apprise the general public to differentiate between a regular finance investment company and a Nidhi company.
Important Points to Consider while Registering a Nidhi Company
- A Nidhi Company must have a minimum of 200 shareholders
- A Nidhi company must have unencumbered term deposits of not less than 10% of the outstanding deposits
- A Nidhi must have net owned funds of ten lakh rupees or more
- Minimum 7 Shareholders and 3 Directors are required to incorporate the Nidhi Company
- Nidhis can issue only rights shares and unsubscribed portion of rights issue can be apportioned by the Board of Directors as per the existing law
- Nidhi members should not exercise over and above 10% of the total voting rights of all shareholders
- A Nidhi Company must ensure that the number of membership should feature a minimum of 200 shareholders
- Nidhi Investments for minors can only be done where the legal guardian is a member of the Nidhi
- Every Nidhi Company shall issue the equity shares of a minimum value of Rs10
- The Nidhi Company should not be allowed to issue any new preference shares at any time
Nidhi companies in India are permitted to engage in private circulation of loan and investment schemes among members only. An abstract of the Balance sheet can also be circulated among the members. No advertisement shall be made for mobilization of Nidhi investments and resources. No brokerage or incentives will be allowed to be paid for mobilizing deposits from members or granting loans.
Every Nidhi should make available to a prospective depositor a Deposit Application Form to be filled in by the depositor which should contain the salient features of the Nidhi pertaining to its finance and administration as per NBFC Advertisement Rules. All Deposits either fixed or recurring, should hold at least ten shares (Rs.100/-). Fixed Deposits should be for a minimum period of 1 year to a maximum of 7 years.
A Nidhi company is a good investment due to an effective and secure mechanism of financial management in place. As there is not much scope of mismanagement of funds due to every member being an authority, thus Nidhis are transparent in operation to the point of having the potential for good ROI. Starting a Nidhi company is beneficial for long term gains due to the nature of investments and procedures.
Regulations for a Nidhi company can be found on several sites online. These will apprise you of the entire framework of starting a company. As a Nidhi company does not involve the process of regular business corporations, the process itself is not as complicated. Once you have started your Nidhi Company, you can be assured of a successful venture resulting in effective growth.