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Chits are financial
instruments organised by individuals, firms and companies. Chit
Funds, classified under Miscellaneous Non Banking Financial
Institutions by RBI, originated a couple of centuries ago in South
India. It is both a lending and a saving instrument where the
investors also become the borrowers. The organisers or promoters of
chits are known as Foremen.
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2. How
are chits organised ?
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Chits are organised by the Foremen to
suit different income groups. Each group has a specified maturity
period ranging from 25 months to 50 months and each group will have as
many members based on the number of months. Each member agrees to
subscribe a predetermined amount every month - say ranging from Rs.
2,000 to Rs. 1,00,000. The monthly subscriptions collected from all
members are pooled together to form the fund.
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3. What happens to the pooled fund?
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The pooled fund is
called sala. The amount thus pooled every month is offered to one
member of the group each month. By turns, each member will get the
Chit amount less the bid amount.
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4. How can the member get the
Chit Amount?
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All the members or
their authorised representatives can be present at an auction held on
a predetermined date and venue . The member who does not want the Chit
Amount, in that particular month can abstain from the auction. The
Chit Amount will be offered to the member who bids the maximum. The
member who gets the Chit Amount is referred to as the prized
subscriber. If there is more than one member bidding for the same
amount then the winner is decided by draw of lots.
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5. What does a member do
after successfully bidding for a Chit Amount?
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The membership of a
Chit is for a specified period. Therefore the member continues to pay
the monthly subscriptions every month till the termination of the
Chit.
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6. Does the subscriber need to pay
the same amount each month?
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No. All the members
will be paying the Chit installments less the dividend as their
subscription each month.
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7. Do all the members receive the
same prize amount?
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No. For instance on
the first instalment, each get nearly 70% of his share/amount for
which he joined as the maximum reduction permitted is 30%. From the
next instalment onwards, the amount may rise as per the bid amount. If
there is more than one subscriber who is prepared for the maximum
reduction amount then lot will be made to find out the bidder. Usually
this rate will continue for about 10 instalments and then the amount
will increase.
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8. How reliable is the Foreman in
meeting his payment obligations to the prized subscriber on the due
date?
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The company is headed
by Sri.K.Nandan,former Chairman of THE FEDERAL BANK LTD.All
other Directors are well known people in the social life of Kerala
highly placed NRIs.The company does
not accept any deposits from the public. The paid up capital of the
company is always kept equal to that of the total chit amount.
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9. Why should I prefer a Chit Fund
when there are Banks and other Financial Institutions?
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With Chit Funds, you
can plan well for funds. Banks do not lend for all purposes. In a Chit
Fund no questions are asked about the end use of the money. What is
relevant is only the member's paying capacity. There are lakhs of Chit
Fund subscribers who have acquired and improved their properties, set
up their own professional and business enterprises, and discharged
their liabilities.
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10. Does the Foreman have any
specific preferences when it comes to subscriber?
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No. The Foreman has
no problems as long as the installments are paid on time. It is only
when there is continuous default that he becomes apprehensive. In fact
a defaulter can adversely affect the cash flow. Therefore, the foreman
has to monitor payments closely and organise a good collection
machinery. A vigilant, well informed Foreman can help in successfully
organising a Chit Fund Group.
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