How does a chit fund works, and is it beneficals?

Chit fund is one among the best saving method that indulges in the fixed amount. Every month the subscriber has to pay certain fixed amount. One among the group must conduct the auction and maintain the records. He is called the foreman. He is responsible to make way ahead in maintaining the amount till the maturity month. He also has the benefit of earning 5 percent of the lowest bid amount.

Here is an example to make you understand the working of chit funds easily.

For instance, let us take the person named Candy as one of the subscribers in a monthly chit scheme. Candy has joined in a chit fund scheme along with 9 others. So, totally the chit scheme holds 10 members. Every person has to contribute 10000 rupees each for 10 months leading to 1,00,000 rupees at the year end.

In this case, during the first-month chit auction, Bheem has came up with 1000 rupees. Once the bidding starts, the person who is in need of money can start biding. The person who bids the lowest amount will get the chance of owning the money. Let us see the representation to understand much better.

Monthly amount paid by every subscriber including Bheem = 10000

Bids made in the auction = 9000, 8000

As the lowest bid is 8000, the person will be given the amount of 8000. But, before that there will be an organiser fee deducted from the lowest bid amount.

Fortunately, every chit fund scheme or organizers will take 5 percent of the lowest bid amount. i.e 5 percent of 8000. So, Bheem, the foreman will get an amount of 400 and the rest amount 7600 (8000–40) will be taken by the person.

Apart from the bid amount, remaining 2000 (10000–8000) will be split up to the other members of the scheme. At the end of 10 months, every subscriber will get a bulk amount depending upon the before auctions. For Free demo chit fund software Visit: Chit Fund Software Live Demo

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