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The
Working Of a Chit Fund Scheme
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The modus operandi of
the chit fund, in a nutshell, is as follows:-
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The foreman of the fund collects a specific periodic
subscription from each of a certain number of subscriber-members.
The total of the periodic subscription, called the capital of the
chit fund, is given out periodically as the prize amount to any one
of the members through a system of auction. There will be many
periodical installments as there are members. Thus each of the members gets
an opportunity to receive the prize amount once during the tenure of
the scheme. All members contribute towards the periodic subscription
till the end of the duration of the chit scheme.
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The scheme involves the following functions: |
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 Pooling
together of scattered sums of a group of individuals; |
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Loaning
out of the pooled amount to a member of the group; and |
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Continuing
the process of collection and distribution of amounts for a certain
definite period. This time-bound function of collecting and
distribution of funds is different from the function of other
financial intermediaries. |
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Choosing
a suitable Group is important in joining a chitty.. The
selection of a particular Group, largely depends on the
subscriber's capacity to provide surplus funds month after
month from his normal income for this purpose. This aspect is
very important for the subscriber as well as the company's
point of view to avoid any embarrassment at the time of
releasing the prize money or in releasing chit installments
month after month.
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