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How does chit works
What types of offers are typically associated with “CHITS”?
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CHITS offers a reliable source of finance for various individuals, including small investors, businessmen, and small-scale industrialists. It caters to both those looking to save and those seeking to borrow for significant expenses such as weddings or house construction.
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Choosing an appropriate group is crucial. The selection largely depends on the subscriber's ability to consistently contribute surplus funds from their regular income. This consideration is essential for both the subscriber and the company to prevent any issues when disbursing prize money or monthly chit installments.
1.What is a Chit?
It is a contract between the foreman, referred to as the promoter, and the subscribers, who join voluntarily. This financial system involves the regular, periodic savings of a group of subscribers, who receive a specified amount each month (installment) for a designated period.
The pooled funds each month are offered to subscribers at monthly auctions. The subscriber who bids for the highest discount is declared the prize winner and receives the prize amount upon providing proper security. A prized subscriber must continue to pay subscriptions until the termination of the chit. The amount foregone as a discount, less the foreman's commission, is distributed among the subscribers as a dividend.
2. What is a Chit group?
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A chit group consists of a fixed number of participants who agree to contribute a predetermined amount over a fixed period. For instance, 40 participants each contribute Rs.500 per month for 40 months. The number of participants and the duration in months must be identical.
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Anyone responsible for managing the chit under the Act, including individuals like branch managers who perform these duties.
3. Who is a foreman?
4. Is the contract between the subscribers and the foreman valid indefinitely?
No, the contract is only valid for the duration of the chit group and until all liabilities between the subscribers and the foreman are fully settled.
5. What are the benefits for chit subscribers?
a) To save small amounts regularly and receive a lump sum during the chit period.
b) To borrow against future savings in advance. Some subscribers join chit funds to borrow, while others join to save.
6. What is Chit agreement?
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The Chit agreement is a contract between the foreman and the subscribers of a chit group, outlining the rules for conducting the chit. It is signed in duplicate and witnessed. The agreement includes the subscriber's name and address, the number of tickets allotted, installment details, interest or penalties for late payments, the start date and duration of the chit, the method for selecting the prize winner, the maximum discount per installment, dividend and foreman's commission details, auction date, time, and place, the installment when the foreman receives the chit amount, the bank's name, and the security required from the prize-winning subscriber.
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Instead of signing the agreement directly, subscribers sign a declaration in the application form confirming they have read and understood the terms and conditions. These declarations are then compiled and filed with the registrar.
