Need Help?
Need Help?
Chit is a mutually beneficial scheme where in a group of people contribute towards the chit value and one member from the group is given the prize amount and the dividends are distributed to all the other members. For Example if we consider a chit value of Rs.25,00,000/- with 50 members in the group each member has to contribute Rs.50,000/- where by (50 members * Rs.50,000) Rs.25,00,000/- is collected.
The auction is conducted in which the members participate and the person who discounts the maximum (up to 40%) is declared as the prized subscriber. If there are more than one participant for maximum discount the Successful Bidder will be determined by way of lottery or chitty. Where in, the tokens bearing the numbers allotted to the members is put into a box and one token is drawn by any of the member present in the auction and thus, the member whose number is mention on the drawn token will be declared as the Successful Bidder.
40% is the maximum bid allowed, which means a person foregoes Rs.10,00,000/- and the balance Rs.15,00,000/- is paid to the prized subscribers. Out of 40% discount 5% goes to the company towards company’s commission for conducting the chit and balance of the discount amount is distributed equally amongst all members of the group. That is 35 % is distributed to all the members by which next month they have to contribute (Rs 50,000 - 17,500) = Rs.32,500/- only and Rs.17,500/- is declared as dividend for that month.
When there are no maximum bidders, then the members will bid in the open auction that is conducted within 5 minutes for each group and the person who bids the highest is declared as Successful Bidder. For Example: Suppose, in the 10th month the Successful Bidder was declared at 35%, then all members of the group will get a dividend of Rs.15,000/-each i.e. (Rs.7,50,000/-divided among 50 members) and each member has to pay Rs.35,000/- towards Installment.
Therefore the members have to pay the installment amount less the dividend, the dividends earned workout to be the interest on the Installment payments made by the member. Successful Bidder is supposed to give the required sureties depending on the future liability of the chit. Only Non-Prized Subscribers whose payments are up to date can participate in the auctions.
Every month there is a Successful Bidder who gets his prized amount on submission of required Guarantors documentation, provided the sureties are satisfactory verified and approved.
The company is prepared to disburse the prized amount within 45 days after documents approval. The prized subscriber has continued to pay the monthly installments till to the termination of the chit.
Those members who do not want to borrow funds contribute to the chit and after the 45th month if there are no bidders for the auction, lot declares one of the remaining members as Successful Bidder and the prized amount is paid to them. They either have options to submit sureties or prefer Future liability deducted upon which balance amount is paid from the Prized amount. The dividend accrued for the 50 months are the returns on investment for the monthly deposit made to their accounts.
Chit fund is a unique financial concept, which has flexibility to borrow or save. By paying one-month installment amount, a person can get to borrow from the chit value, by offering a discount not exceeding the maximum limit ascertained in the chit agreement.
In a chit value of Rs.5,00,000/- for a period of 50 months, first the subscriber can get an amount of 3,00,000/-by paying only Rs.10,000/- and remaining installments he pays up to 50th months. The rate of borrowing is much cheaper than several other financial schemes.
The non prized subscriber who is a saving member up to the last installments gets dividend which is comparatively higher than the interest that are accrued by way of Recurring Deposit Schemes.
The purpose of drawing the prized amount need not be disclosed. It can be used for any need by the member for Example: House construction, Marriage, Education, Expansion of business, buy a Computer or any other purpose at his discretion.
