How does Chit Work?

To best explain its working, here’s a simple example:

Lets assume there is a chit fund with 50 members each contributing Rs. 3,000 per month for 50 months. Thus total monthly collection in this chit fund = Rs. 1,50,000/-.

Suppose in the 1st month, 2 members A & B need funds and participate in the bidding. Member A bids for Rs. 40,000, Member B bids for Rs. 45,000 (30%). Thus, Member B becomes eligible to draw the money for the month as his bid is higher than the first members bid.

Member B can now withdraw

Rs.1,50,000 – Rs. 45,000 (Dis amt) Rs. 1,088 (S/T 2@14.5% under revision) = Rs. 1,03912/-.

Rs. 45,000 – Rs. 7,500 (Foreman commission of 5%) = Rs.37,500

37,500/50 Rs.750 is distributed equally among all the members, ie: Rs. 750 each.

So each subscriber has to pay Rs.3000-Rs.750/-(Div amt) = Rs.2,250/-

So in effect, during the 3rd month, each member contributes only Rs. 2,250 (Rs 3000 (Monthly EMI) – Rs 750(Div).

This process is repeated every month for a total of 50 months.

If there is more than one member bidding for the same bid amount in a particular month, a lottery is drawn to determine which of the members will be eligible for withdrawing the amount.

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