How do chit funds work
Chit fund is defined in simple words as, It is a well know money grouping and borrowing scheme (Mutual exchange) within the well know people are also known as subscribers, here all members come together and put a predefined money every month for a particular amount of term to achieve one whole figure.
For example, you are in a group of chit fund which contains 10 members including you investing for 5000 each month and 10 installments at the last you get 50000.
• Usually installments = members.
• Every month one member getting prized with a bidding certain amount (Consider 20% is the bid amount).
• If confliction happens then selection by lottery pick.
• Member will get (5000*10) total collection - (20% total collection) ie 80% of total amount minus Foreman’s fee (It varies).
• In that bid amount, 20% is distributed to all Members (ie 10000/10) 1000 each.
• Each member will deposit 4000 instead of 5000.
• It will repeat over 10 months but bid amount will decrease month by month.
Conclusion
• Beginning member will get money which considerably takes less interest.
• Middle one get little bit more money than invested
• Considerably low-interest rate.
• Final member will get additional money than invested in the group.
