1. What is Chit Fund?

Chit is a mutually beneficial scheme where in a group of people contribute monthly towards the chit value and one member from the group is given the prize amount and the dividends are shared with all the other members. For Example if we consider a chit value of Rs.100000/- with 25 members for a duration of 25 months, then in the group each member has to contribute Rs.4000/- whereby (25*4000) Rs.100000/- is collected. The auction is conducted in which the members participate and the person who discounts the maximum is declared as the prized subscriber. If there are more than one participant for maximum discount the Successful Bidder will be determined by way of lottery. 35% is the maximum bid allowed, which means a person foregoes Rs.35000/- and the balance Rs.65000/- is paid to the prized subscribers. Out of 35% discount, 4% goes to the company towards company’s commission for conducting the chit. The discounted amount will be distributed as dividend which is adjusted in the next month’s contribution. If the discounted amount is Rs.30,000/- then the dividend amount adjusted will be Rs.1,200/- per member (30,000 divided by 25 members). Hence, the member has to contribute an amount of Rs.2,800/- as the next months contribution

2. Why should I subscribe to a CHIT scheme?

Financial planning is mandatory for everyone. It is sensible to earmark a small amount from your business every month as a reserve to face any business contingencies like price fluctuations, change in government policy, vehicle purchase, new competition, or capitalization in plant or machinery. Similarly, social events need to be financially planned. Housing, education, marriage and travel have all become finance intensive. Subscribing to chit schemes is akin to creating a generalized contingency reserve, which may be liquidated in case of any business or social contingency. Target money is not bound by end-use considerations. The biggest advantage that the institution of chit funds has to offer is that you can plan in advance for any forthcoming capital outflow even if you are not aware as regards the exact timing of such outflow.

3. What are the benefits of a chit fund?

Chit fund is a unique financial concept, which has flexibility to borrow or save. By paying one-month instalment amount, a person can get to borrow from the chit value, by offering a discount not exceeding the maximum limit ascertained in the chit agreement.(i.e.35% on face value of chit amount) In a chit value of Rs.100000/- for a period of 25 months, first the subscriber can get an amount of 65000/-by paying only Rs.4000/- and remaining installments he pays over a period of 25 months. The rate of borrowing is much cheaper than several other financial schemes. The non-prized subscriber who is a saving member up to the last instalments gets dividend which is comparatively higher than the interest that are accrued by way of Recurring Deposit Schemes. The purpose of drawing the prized amount need not be disclosed. It can be used for any need by the member for Example: House construction, Marriage, Education, Expansion of business, buy a Computer or any other purpose at his discretion. There will be a compulsory saving which will earn dividends every month. Even if you take at the last month, the total dividends earned will be more than the bank interest rate.

4. What is the security for my money?

A Registered Chit Fund Company makes a Security deposit equal to 100% of chit value in a Schedule Bank as FDR, which is pledged in favor of registrar of chits. Therefore, a member in a registered Chit Fund Company is very much secured than a member in a non-registered company.

5. What is the Income Tax benefits from saving or borrowing?

The dividends earned in a chit are not taxable. If you want to claim the bid as loss then these dividends has to be shown as revenue income in the assessment. Hence the entire dividend earned in a chit is not taxable if you don't claim the bid amount as loss.

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1. Why should I associate with Think Chits?

  • Think Chits is a registered company governed by the Registrar of Chits, Govt. of Karnataka
  • Offers maximum transparency by leveraging cutting edge technology which provides members online real time access to chit details
  • Managed by professionals with proven track record associated with blue chip corporates
  • Having a wide range of chit groups available which suits all walks of people like Individuals, Employee, Professionals, Proprietors, Partnership firms, companies, corporate offices, Organization etc.

2. What are the various chit groups available with Think Chits?

It has a wide range of Chit values starting from Rs.500,000/- to a maximum range of Rs.50,00,000/-

3. What is the duration of the chits available?

The chit duration ranges from 20 – 40 months, groups with 20 to 40 members respectively

4. What are the modes of payment?

Member can make payments either by cash, Demand Draft, cheques or online transfers. Third party cheques are not acceptable. Issued cheques have to be realized before the auction date if the member wants to participate in auction.

5. How can I participate in the auction?

A member can participate in the chit auction from the second month, only if he or she has made the payments up to date. If paid by cheque, it should be realized before the auction date. A defaulter whose payment is not up to date before auction is not eligible to participate in the auction.

The time, date and venue of auctions are fixed at the time of joining the chit membership. The duration of auction is five minutes. The bidder who bids the maximum is announced as the prized bidder in that auction.You may participate in an auction in person, through an authorized representative or by communicating through a call and message.

6. What is purpose of bidding?

In every chit group some members will be in need of money. So all the members who are in need of money will be participating in the auction for bidding. The purpose of bidding is to declare the successful bidder who gives the highest bid amount (Not exceeding maximum limit) within the specified auction time

7. What happens if there are no bidders?

In case there are no bidders then a minimum bid amount of 13% of the Chit value is fixed. A draw declares one of the remaining members as Successful Bidder and the prized amount is paid to them. They either have options to submit sureties or prefer future liability deducted upon which balance amount is paid from the prized amount.

8. Why are sureties or guarantors taken?

A chit fund company undertakes to collect periodic installments from all the subscribers and pay the amount so collected, after deduction its commission (4% or the chit value) to one of the prized subscriber each month. At every point in time, the chit fund company pays the prized subscriber more money, than what it had collected from the prized subscriber, on the understanding that the prized subscriber will pay the balance future installment on time. In other words, the prized subscriber takes a loan advance from the chit fund company, with an understanding to repay the balance future installment in time, to enable the foreman to pay the prized money to other non-prized subscribers each month. In order to safe guard the interest of all non-prized subscribers each month the chit fund company insists upon the prized subscriber to provide guarantee for repayment of future installments.

9. What are the sureties to be submitted?

A member can give sureties depending on the future liability of the chit. Following are the sureties generally submitted by the members:

  1. Personal Surety: Any salaried person working in State/Central Govt./Public Limited Companies/Banks and other Reputed Companies will be taken as surety.
  2. FD Pledge: If a member is having any bank deposit, he can pledge the deposit certificate as surety. Member can also make the deposit from the prize money, which will be accepted as surety.
  3. Bank Guarantee: Guarantee given by the Bank in a schedule format can be submitted as surety.
  4. Income Tax Assessor: Any person having I T Assessment for the past three years having business, profession etc will be taken as sureties.
  5. Property Pledge: Deposit of title deeds of urban property can be submitted as surety. Third party property can also be given as surety.

10. How soon can I expect payment once I bid the chit?

Once a member is declared successful bidder it is his responsibility to provide satisfactory sureties/guarantors based on the future liability as specified in the byelaws. On receipt of the surety the liability of the member and guarantors are verified and then if the guarantors are acceptable a document is prepared that mainly includes the guarantor bond and pro-note apart from the other requirements depending on the kind of sureties submitted. Once the documentation is complete the payment is released to the bidder within 2 working days.

11. How and when are the dividends distributed?

The dividends are distributed the subsequent month of auction by way of discount on the subscription amount.

12. What action will be taken against defaulting subscribers?

To safe guard the interest of all the non-prized subscribers, penalty is collected from all subscribers who make delayed payment of periodic installments.

  • In case a non-prized subscriber defaults for a continuous period of three months, such subscriber will be removed. The actual amount paid by him in the chit minus company commission will be repaid to such defaulting subscriber, after completion of the chit period.
  • In case a prized subscriber defaults for a continuous period of three months, a penalty of 2% per month will be collected and dividends will also not be paid to such defaulting prized subscriber. Legal action will be initiated against the said defaulting prized subscriber and his guarantors in the court of law, for recovery of all dues.

13. Is the foreman also a member of the group?

Yes. The foreman is also the member of the chit group and contributes installment every month like all other members of the chit group. The foreman picks the first month’s chit.

14. Can I withdraw from a chit group after becoming a member?

When a subscriber withdraws, the foreman has to find an alternate subscriber in his place. Until then the chit fund company has to arrange funds on behalf of such a subscriber, for payment to a prized subscriber each month. Hence withdrawal is permitted, but the actual amount paid by the subscriber in the chit minus company commission will be repaid to such a withdrawing subscriber at the end of the chit period. Subscriber must know that only non-prized chits can be canceled. Prized chits can be pre-matured only on the condition that all pending and future installments in the chit are paid in advance. A non-prized subscriber can withdraw their subscription by a written request to the company. The company will, as per the bye-laws and chit-agreement, make the payment after the deductions, on actual subscribed amount.

15. What are the minimum and maximum bids?

The below table shows an illustration for a Rs.1,00,000/- chit

Month-1 Company Chit
Month-2 22,000 30,000
Month-3 21,250 30,000
Month-4 20,500 30,000
Month-5 19,750 30,000
Month-6 19,000 30,000
Month-7 18,250 30,000
Month-8 17,500 30,000
Month-9 16,750 30,000
Month-10 16,000 30,000
Month-11 15,250 30,000
Month-12 14,500 30,000
Month-13 13,750 30,000
Month-14 13,000 30,000
Month-15 12,250 30,000
Month-16 11,500 30,000
Month-17 10,750 30,000
Month-18 10,000 30,000
Month-19 9,250 30,000
Month-20 8,500 30,000
Month-21 7,750 30,000
Month-22 7,000 30,000
Month-23 6,250 30,000
Month-24 5,500 30,000
Month-25 4,750 30,000