Chit fund works under a methodology where the chit fund member agrees to contribute a specific amount monthly. Due to this monthly saving, they ought to get a bulk amount at the end of the maturity data. Let us go with an example.
Let us consider a chit fund scheme with 10 members. All the 10 members have to contribute equal amount of money for a specific month period. For instance, let us consider all the 10 members are sharing 1000 monthly for 10 months. Hence, every member must contribute 1000 in which they will get 10000 at the maturity time. Meanwhile. During every auction, the whole amount can be auctioned by the members of the chit fund. If anyone is in need of money, they can bid the amount during the auction. If more than one member bids for money, then the one who bids lower gets the opportunity to take the money.
Out of the money, 5% will be taken the foreman. The foreman is the member of the chit fund and he is also the person responsible for the amount dealings in the auctions. If a particular member of the chit fund who bids lower amount, will get the amount left behind the 5% of the foreman’s share.
Here the work of foreman is high. He needs to keep the details of the auctions conducted at every month. He is responsible for the cash transferred among the chit members. This is how the chit fund works exactly.
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