Important terms in Chit Funds
After listening from customers who are asking about Chit Funds, we realized that about 80-90% of the customers are new to the concept. Hence this is an honest attempt to put forward all the terms that are used in general.
So, please feel free to comment and let us know if you need anything in specific and we will be more than happy to assist you.
Here are some of the key words which are generally used in the Chit Fund industry.
- Chit Value:Chit Value is the amount of Chit that you are subscribing to.
- Chit Duration :Number of months during which the Chit will be operated. It is always equal to the number of Subscribers.
- Subscriber :A member or subscriber is used interchangeably and he / she represents one person in the Chit Group.
- Chit Group :A group of subscribers coming together to participate in the Chit.
- Foreman :Company which is taking the responsibility of forming the group, executing daily chores of collecting money from subscribers, conducting monthly auctions, awarding winner with the prize money, validating the documentation of the prized subscriber, disbursing the money to subscribers and running the actual business so to speak.
- Ticket :A ticket is a word used by the foreman to represent each subscriber. Every subscriber will have a ticket id.
- Bidding :Every month there will be group of borrowers who will come for borrowing money. An auction will be conducted to decide who will get to take the money. This process of auction is called Bidding.
Auction starts from a minimum bid percentage (generally 5% of Chit value) and can go up to maximum bid percentage (changes based on the Chit value and duration). The subscriber who bids for maximum wins the auction.
If there is more than one subscriber for the same bid amount, there will be a lucky draw among them. Therefore the one who wins the lucky draw will be awarded the money.
- Prized Subscriber :The Prized Subscriber is the subscriber who gets the money in the auction.
- Bid Amount :Bid amount is the money foregone in the auction.
- Foreman Commission : Foreman/Chit Fund company takes 5% of the chit value for managing the Chit Groups. This is called as foreman commission.
- Dividend :( (Bid Amount – Foreman Commission) / Total subscribers) is the dividend which every subscriber gets. That is, the foreman commission is deducted from the bid amount and divided across all the subscribers including the prized subscriber.
- Subscription amount :Subscription amount is the money paid by the subscriber every month to the chit group. This amount is paid after the dividend is given to the customer.
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