Transparency in Chit Operations
How Chit Fund Works
CHIT provides a good source of finance for different type of people viz., small investors, businessmen, small scale industrialists etc.
CHIT is a good means of savings for any contingency requiring substantial amount.
It serves all persons whether they desire for savings or borrowing to meet extraordinary expenses on special occasions like Marriages, Construction of houses , business , Education etc.,
Adequate care is necessary to choose a suitable Group. 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 instalments month after month.
1. What is a Chit?
It is a CONTRACT between the foreman, as the Promoter and the subscribers, who join voluntarily. It is a FINANCIAL SYSTEM under which the periodical and regular savings of a group of subscribers are made available to each subscriber, a SPECIFIED AMOUNT every month (instalment) for a SPECIFIED PERIOD.
The Pooled funds every month are offered to the subscribers at monthly AUCTIONS and the subscriber who BIDS for the highest DISCOUNT is declared the PRIZE WINNER and given the PRIZE AMOUNT on PROPER SECURITY . A Prized subscriber also should continue to pay the subscriptions till the termination of the chit. The amount foregone as discount, less foreman’s commission is distributed among the subscribers as dividend.
2. What is a Chit group?
A Chit group refers to a specified number of members agreeing to subscribe a specified amount for a specified period. For example, 40 members, 40 months, Rs.500/- a month. The number of members and the number of months are to be the same.
3. Who is a foreman?
Any person under the Act responsible for the conduct of the chit and includes any Person, such as branch manager, discharging his functions.
4. Is the contract of the subscribers with the foreman valid for an indefinite period?
No. It is valid only for the duration of a CHIT GROUP and until the liabilities of subscribers to foreman or vice versa are discharged or paid in full.
5. What are the benefits of chit Subscribers?
- To save in small amounts to receive a lump sum during the period of chit.
- To borrow the future savings in advance. Some subscribers join chit funds to borrow and others to save.
6. What is Chit agreement?
The Chit agreement is a contract between the foreman and the individual subscribers to a chit group. It is a set of bye-laws or regulations dealing with the procedure for the conduct of chits. It will be signed in duplicate, duly witnessed. The chit agreements shall contain the name and address of the subscriber, the number of tickets allotted to him, the number of instalments and the instalment amount payable, the interest/penalty for delayed payment, the probable date of commencement of chit and its duration, the manner of deciding the prize winner at each instalment, the maximum discount to be foregone at each instalment, the mode and proportion of dividend and foreman’s commission, the date, time and place of auction, the instalment at which the foreman is to get the chit amount, the name of the bank, the security to be furnished by prized subscriber etc., Though each subscriber is supposed to sign the chit agreement, in practice, each subscriber signs a declaration in the application form that he has read and understood the terms and conditions of the Chit Agreement. The declaration of all the subscribers are detached from the application form, pasted in a piece of paper and filed with the registrar.
7. How are the subscribers enrolled for a group?
The subscribers have to fill in an application form furnishing particulars of their names, residential and office addresses, approximate gross monthly salary, names of nominees and their relationship to them. They also have to sign the declaration that they have read and understood the terms & conditions of the Chit Agreement.