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Query on chit fund

krina (student) (1263 Points)

17 April 2013

Hello everyone...

Can some please explain me the meaning of chit fund company?

Thanks in advance..:-) :-)

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Ankit (CA, CS) (3064 Points)
Replied 17 April 2013

Dear Krina,

A collection of members called a chit group makes their contribution in the form of money to collect a chit amount and they bid in an auction and are awarded with the prize money which is equal to the chit amount minus the discount and the foreman's commission.

so say there are 10 people and they contribute Rs. 100 each evry month. so the total collection will be Rs. 1000 per month. now, every month they will take out a prize and the winner gets Rs. 1000.

here, there is an assured prize of 1000 to every contributor since the duration of the fund is such that it matches with the no of contributors. so, in this case, the fund willl run for 10 months so that each one gets a prize.

the logic is, that you contribute 100 per month and get 1000 in one go...it is a kind of savings...but there jhave been fraudulant schemes also..

in simple terms, it is somewhat like ladies' kitty parties which has somewhat the same logic....

- Ankit

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