Chit Funds: What are they and How to invest in them?
- Nov 08, 2023
What are Chit Funds?
A chit fund is a type of collective savings plan where a number of individuals commit to making regular, fixed contributions to a shared fund pool. The entire fund pool is given to one group member for that duration, either by a lottery or another method. Then, in accordance with the agreement, each group member gets the fund in turn as they rotate receiving it. Kuri and Chitty are other names for chit funds
How Does a Chit Fund Work?
Many people contribute to the chit value on a regular basis over a length of time equal to the entire number of subscribers or members (investors) under a chit fund plan. The money raised is given to a person who is selected via a lucky draw or auction.
Whoever decides to accept this lowest sum (with the lowest offer) wins the money through an auction allotment procedure. We call this kind of system a reverse auction. After deducting a foreman's fees and commission, the amount forfeited by the winner is divided equally among the remaining bidders. A dividend is a sum of money that is awarded to each bidder.
Once a winning bidder consents to claim the amount, they will still make investments. A predetermined date is the start of a chit fund. Each month, members retain their installments in the pot. Subsequently, there is an open auction where subscribers can submit bids for the value. The one who is willing to accept the smallest payment is the winner. That month, the chit fund is given to him or her.
