Chit fund business is used for saving money.. its very useful to individuavals to save money
now we will discuss about chit and its procedure and uses..
what is chit:
A collection of members called a chit group makes their contribution in the form of money to collect a chit amount and they bid in an auction to be awarded with the prized money which is equal to the chit amount minus the discount and the foreman's commission.
E.g.: 1000 * 50 = 50,000/-. Where 1000 is the maximum monthly contribution needed from a subscriber, 50 is the duration of the chitty in months and 50,000 is the maximum sum assured. The duration also equals the number of subscribers, as there must be (not more or less) one subscriber to receive the price money every month.
The chitty starts on an announced date, every subscriber come together for the auction/lot. As per Kerala chit act, the minimum prize money of an auction is limited to 70% of the gross sum assured that is 35,000 in the above example. When there are more than one person willing to take this minimum sum, lot are conducted and the 'Lucky subscriber' get the price money for the month. If there is no person is willing to take the minimum sum, then a reverse auction is conducted where subscribers open-bid for lower amounts; that is from 50,000 >> 49,000 >> 48,000, and so on.
The person bidding lowest sum get bid amount.In both the cases the auction discount, that is the difference between the gross sum and auction amount, is equally distributed among subscribers or is deducted from their monthly premium. For example if the auction is settled on a sum of 40,000, then the auction discount of 10,000 (50,000 - 40,000) is divided by 50 (the total number of subscribers) and every one gets a discount of 200. The same practice is repeated every month and every subscriber get at least a chance of receiving money.
Example 2:
Example: 25 subscribers agree to subscribe an amount of Rs.4,000/- for 25 months i.e. for a total chit value of Rs.1,00,000/-, each subscriber will get his chit amount in his turn as determined by draw of lot or by auction. During auction all non-prized subscribers bid by allowing percentage of subscription to be forgone. The highest bidder i.e. who allows maximum percentage to subscribers is given the chit amount. The amount, foregone by the subscriber is distributed as dividend amongst all the subscribers in every draw, after deducting 5% commission/remuneration to be paid to the foreman of the company. Maximum bid is normally between 20% to 40% and the duration of chit is normally between 12 months to 50 months. In case there are more than one highest bidder in an auction, then draw of lots is made and chit amount given to the successful subscriber.
These (25) subscribers constitute a ‘Chit Group’ and the Chit fund company can run many such groups. For each group approval of bye-laws and commencement certificate from the office of the Registrar, Chit Funds, is must. The share of a subscriber in a chit is also known as ticket.
now we will discuss about chit and its procedure and uses..
what is chit:
A collection of members called a chit group makes their contribution in the form of money to collect a chit amount and they bid in an auction to be awarded with the prized money which is equal to the chit amount minus the discount and the foreman's commission.
E.g.: 1000 * 50 = 50,000/-. Where 1000 is the maximum monthly contribution needed from a subscriber, 50 is the duration of the chitty in months and 50,000 is the maximum sum assured. The duration also equals the number of subscribers, as there must be (not more or less) one subscriber to receive the price money every month.
The chitty starts on an announced date, every subscriber come together for the auction/lot. As per Kerala chit act, the minimum prize money of an auction is limited to 70% of the gross sum assured that is 35,000 in the above example. When there are more than one person willing to take this minimum sum, lot are conducted and the 'Lucky subscriber' get the price money for the month. If there is no person is willing to take the minimum sum, then a reverse auction is conducted where subscribers open-bid for lower amounts; that is from 50,000 >> 49,000 >> 48,000, and so on.
The person bidding lowest sum get bid amount.In both the cases the auction discount, that is the difference between the gross sum and auction amount, is equally distributed among subscribers or is deducted from their monthly premium. For example if the auction is settled on a sum of 40,000, then the auction discount of 10,000 (50,000 - 40,000) is divided by 50 (the total number of subscribers) and every one gets a discount of 200. The same practice is repeated every month and every subscriber get at least a chance of receiving money.
Example 2:
Example: 25 subscribers agree to subscribe an amount of Rs.4,000/- for 25 months i.e. for a total chit value of Rs.1,00,000/-, each subscriber will get his chit amount in his turn as determined by draw of lot or by auction. During auction all non-prized subscribers bid by allowing percentage of subscription to be forgone. The highest bidder i.e. who allows maximum percentage to subscribers is given the chit amount. The amount, foregone by the subscriber is distributed as dividend amongst all the subscribers in every draw, after deducting 5% commission/remuneration to be paid to the foreman of the company. Maximum bid is normally between 20% to 40% and the duration of chit is normally between 12 months to 50 months. In case there are more than one highest bidder in an auction, then draw of lots is made and chit amount given to the successful subscriber.
These (25) subscribers constitute a ‘Chit Group’ and the Chit fund company can run many such groups. For each group approval of bye-laws and commencement certificate from the office of the Registrar, Chit Funds, is must. The share of a subscriber in a chit is also known as ticket.
