Kutu Fund: Helpful Community Activity or Illegal Scam? | The Full Frontal

Kutu Fund: Helpful Community Activity or Illegal Scam?

There’s something very appealing about becoming the very first person to do something. It’s a way to stick your name in the history books, something to ensure that your legacy will always live on.

After all, who could forget Neil Armstrong, the first man to walk on the moon? Or Sir Edmund Hillary, the first person to climb Mount Everest? 

Closer to home, there have been plenty of Malaysians who’ve made their own mark in history this way. 

Like the Sidek brothers Razif and Jalani Sidek, who became the first Malaysians to win an Olympic medal back in the 1992 Summer Olympics. Or Azhar Mansor, who made the record as the first Malaysian to circumnavigate the globe on his sailing yacht Jalur Gemilang

Of course, being known as the first person to do something isn’t always a good thing.

For example, in February 2022, 38-year-old Nor Jaimah Kamarudin made history by being the first person in Malaysia to get fined for running a kutu fund since the law was amended in 2011.

You Telling Me a Kutu Made This Fund?

The kutus here are the ones who steal your money, not your blood. Source from SehatQ

Before we go on, we need to clear up an important question: what exactly is a kutu fund?

Despite its name, a kutu fund (usually) does not involve lice of any kind. The name is said to come from the Tamil word “kootu”, which means “add” or “mixture”.

Other common terms for kutu fund include “kootu fund”, “main kutu”, “tontine” and “chit fund”.

To put it simply, kutu funds are a form of informal funding or investment. When a group of people decide to do a kutu fund, they pool their money together and use this to fund their own individual needs.

Here’s a simple step-by-step example of how it works:

  1. Imagine for a moment that you have friends. In fact, let’s get wild and imagine that you actually have four (4) friends, all of whom are willing to trust you with their hard earned money for some reason.
  2. You and your friends all agree to put RM100 into a pot every month, meaning that there’ll be a total RM500 in the pot each month.
  3. Now here’s where things get interesting. You can start taking money OUT of the pot. Let’s say you need RM300 to repair your car, so you tell the group “I’m going to take the money, but I only need RM300”.
  4. If no one else objects with a lower bid, you take the RM300 and distribute the remaining RM200 to the rest of the group.
  5. When the next month rolls out, you and your friends each put another RM100, starting the cycle all over again.

Bear in mind that this is just a general summary. Many kutu funds can have their own quirks and rules. For example, the person who gets to take out the money might be chosen via lottery or it could be scheduled so that everyone has a turn.

Wait, Hang On A Sec…

police raid
The police team coming to shut down your grandmother’s illegal kutu fund scheme. Source from New York Civil Liberties Union

“But wait,” you might ask. “If that’s all it is, why’d the police get involved?”

Well, the answer is simple. Technically speaking, kutu funds are illegal.


Before you start dialing 999 to report your parents, please note that it’s generally okay for you to arrange a kutu fund among your own friends or family. This is known as “traditional” kutu, which means that no one actually makes a profit.

The second type of kutu funds (known as the “business” kutu) DOES allow you to make a profit. Unfortunately, it’s also illegal.

Under Section 3 (1) of the Kootu Funds (Prohibition) Act 1971 (Act 28), those involved in such schemes may be punished with a fine of up to RM100,000 and/or imprisonment for a maximum of 10 years.

But Why Is It Illegal?

money money money
“Nah, you can trust me, bro. I’m totally not gonna steal all your money and run off to Jamaica.” Source from Daily Advent

To put it simply, business kutu funds make it very, very easy for scammers to swipe everyone’s cash.

Take the example above. Instead of just taking the RM300 you needed, what would happen if you just took all the money in the pot and ran off with it instead?

Since everyone involved in the kutu fund knows each other, this would actually be pretty bad for you. After all, they know where you live, they know where you work… in the worst-case scenario, they could even call your mum and tell her how naughty you’ve been behaving.

But with a business kutu, you can’t do that because these kind of schemes usually involve complete strangers you’ve never met before.

To make matters worse, the amount of money involved is on a completely different level. The police gave Nor Jaimah a fine of RM50,000, which sounds like a lot of money… until you realise that the amount of money involved in her case is suspected to be over RM100,000!

In one case, a group of women in Johor lost thousands of Ringgit in June 2018 after their “ibu kutu” ran off with all their investment money.

3 Signs That Your Kutu Fund Might Be Illegal

kutu fund scam
Remember kids: don’t trust anyone who asks you for money via social media. Source from mStar

Before putting your money into that kutu fund that your auntie has been bugging you to join, here are a few warning signs that you should keep in mind. Under the current laws, Malaysian kutu funds can NOT:

  1. Charge fees kutu funds are not allowed to have membership fees to join or subscribe to the fund
  2. Take a cut – the kutu leader is not allowed to claim a profit or take a cut from the members’ contributions
  3. Be publicly promoted – it is against the law for anyone to promote kutu funds (and yes, that includes social media posts)

Special Tip: Be very careful of joining any kutu funds if you’re not familiar with any of the people involved. After all, the last thing you want is for your money to be used to fund some criminal scheme.

There Are Easier Ways to Make Money

Just put your money in the stock market like a normal victi- I mean, investor. Source from Know Your Meme

For many Malaysians, kutu funds are treated as a community activity more than anything else. It’s an excuse for friends and relatives to meet up and help each other out during their times of need. If that’s all you’re looking for, then the traditional kutu fund should be just fine.

If you’re looking to actually make a lot of money, however, kutu funds are probably not the way to go. Generally speaking, kutu funds are not meant to be “get rich quick” schemes. Anyone who treats it as such is probably trying to scam you.

For those who really want to make investments, consider going into the stock market instead. At least there, you can actually make money without having to rip off your loved ones.

Normally, I’d recommend putting money into a stable, long-term investment such as EPF. Unfortunately, due to the current situation, things maaay not go as smoothly as you’d like…

Why Aren’t Malaysians Allowed to Withdraw Our Own EPF Savings?.

epf money
It’s our money, right? So why can’t we withdraw it whenever we want? | Source