Why are Nidhi Companies known as Mutual Benefits Societies? All Details.

Before coming to the topic, let’s understand the meaning of Nidhi. Nidhi is a Hindi word, but its meaning in English is ‘treasure’. A company which has been incorporated with the sole purpose of cultivating a habit of thrift and savings amongst its members. As you can see, the sole purpose of this company is quite clear, the deposit and lending of funds are operated between amongst its members only. Which means all these activities are not for the outsider or general people.

Nidhi Company are also included in the definition of NBFC, which operates mainly in the unorganized money market. However, since 1997, NBFC have been brought increasingly under the regulatory ambit of Reserve Bank of India. The RBI wholly and partially regulates Non-banking financial entities.  A Nidhi Company is supposed to carry out all its schemes and plans as per the guidelines of RBI. It cannot carry out any plan, either loan or deposit for more than ten years. These loans are given to the members at relatively lower interest rates, and the deposits mobilized by the Nidhi Company are not much greater when compared to other organized banking sectors.

NBFC compromising equipment leasing, hire purchase, Loan Company, investment, mutual benefit financial company i.e. Nidhi Company.  Nidhi or Mutual benefit company means a company which the Central Government may, by notification, direct that any of the provision of the Act, shall not apply, or shall apply with such exemption, modification, and adaptions as may be specified in that notification, to any Nidhi or Nidhi’s of any class as may be specified in that notification.

The reason why Nidhi’s companies are known as Mutual fund societies because their dealing is restricted only to the members and Membership is limited to the individuals. The principal source of funds is the contribution from the members. Hence the various businesses that are the part of Nidhi Company general known as Benefits fund, Mutual Benefits Funds, Nidhi Permanent Fund, and Mutual Benefit Company.

Important Definition of Mutual Benefit Company or Nidhi Company:

•    Non-Performing Assets: This means a borrowal account in respect of which interest income of loan towards repayment of principal amount has remained unreleased for twelve months.

•    Doubtful Assets: This means a borrowal account which has remained non-performing assets for more than 2 years but less than 3 years.

•    Sub-Standard Assets: This means a borrowal account which is non-performing assets.

•    Loss Assets:  This means a borrowal account which remains non-performing assets for more than three years, or wherein the opinion of the board, a shortfall of recovery of the loan account is expected because the documents executed may become invalid if subjected to the legal process or for any other reason.

•    Net Owned Fund: This means the aggregate of paid of up-equity share capital and free reserves as reduced by accumulated losses and intangible assets appearing in the last audited balance sheet.

 The requirement to be Mutual Fund Society or Nidhi Company:

Nidhi Company or Mutual Benefit Company is incorporated as a Public Limited Company.

•    The sole purpose of the Nidhi Company to cultivate the thrift and savings amongst its members, receiving a deposit from and lending money to its members only.

•    It is mandated to have at least 200 members to incorporate Nidhi Company.

•    Further, within a one year of its incorporation, the NOF would be Rs. 10 lac. And the ratio of NOF would be 1:20, respectively.

•    It shall have a minimum paid up equity shares capital of Rs. 5,00,000/-

•    It should have the word “Nidhi Limited” as a part of its name.

How does Mutual Benefit Society or Nidhi Company work?

The funds deposit in the Mutual Benefit society is released from its members. The credit is given to its members at relatively moderate rates for a purpose like house construction, or repairs. 

The deposit or fund assembled by the Nidhi Company is limited as compared to the organized finance sector. The reason is that Mutual benefits society is operated in the limited area with a specified fund base. They can carry on the following rules;

•    To provide loans to its members.

•    To accumulate deposits from its members.

•    Loans should subject to some limits.

How to get Membership in a Mutual Benefit Society?

In order to get a membership, you need to read some rule that is listed below;

•    A Nidhi Company shall not admit a corporate body or trust as a member.

•    Except as otherwise permitted under these rules, every Mutual benefit company or a Nidhi Company ensure that its members is not reduced to less two hundred members.

•    A minor shall not be admitted as a Member of Nidhi.

Provided that deposit at the name of a minor, if they made by the legal guardian who is a member of Nidhi.


Nidhi shall provide loans to its members subjected to the following limits;

•    Loan amount 2 lakh – If the deposit is 2 Crore

•    Loan amount 75 lakh – If the deposit is more than 2 Crore but less than 20 crore

•    Loan amount 12 lakh – If the deposit is more than 20 Crore but less than 50 crore

•    Loan amount 15 lakh – If the deposit is more than 50 Crore.

Keep in mind, a member who has defaulted in the repayment of the loan shall not be eligible for the further loan. Moreover, the amount is calculated on the basis of the last audited annual financial statements.

How to get loans against security at Mutual Benefit Company?

Members of Mutual Benefit Company can take the loan against gold, silver, and jewelry. But the repayment shall not be exceeded on year- Up to 80% of the value. Total loans against the immovable property shall not exceed more than 50% of the overall loan outstanding on the date of approval by the date.

Final say:

I hope now you understand the reason why Nidhi Company is recognizable as the Mutual Benefit Society. For more information regarding Nidhi Company Registration you can call us and share your queries with us.




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