The modus operandi of the chit fund, in a nutshell, is as follows:
The foreman of the fund collects a specific periodic subscription from each of a certain number of subscriber-members. The total of the periodic subscription, called the capital of the chit fund, is given out periodically as the prize amount to any one of the members through a system of auction. There will be many periodical installments as there are members. Thus each member gets an opportunity to receive the prize amount once during the tenure of the scheme. All members contribute towards the periodic subscription till the end of the duration of the chit scheme.
The scheme involves the following functions:
- Pooling together of scattered sums of a group of individuals;
- Loaning out of the pooled amount to a member of the group; and
- Continuing the process of collection and distribution of amounts for a certain definite period. This time-bound function of collecting and distribution of funds is different from the function of other financial intermediaries.
Financing plans offered by financial companies are PRODUCT DRIVEN and the money in these plans can only be utilized for a specified activity or product. As compared, chit schemes are PROCESS - DRIVEN and, therefore, chit money may be utilized for an activity that a prudent subscriber considers relevant. The flexibility offered by chit schemes is enormous.
Memberships for small chits may be taken from time to time depending on convenience and repayment capacity and then totaled up to purchase an asset or a car worth a bigger value. The purchase of such assets becomes easier because of the breaking up of capital cost into smaller chits. Finance schemes offered by financial companies start only after the purchase of the asset. As compared, chit schemes can be subscribed when you start planning for your asset, thereby building the finance for your asset according to your convenience, advance planning and repayment capacity.
While you may be building your finances for a desired asset, in case there is some other urgency, you may actually get the money for that new development as if you had planned for the same. Most chit schemes compare favorably with the cost of funds in schemes offered by specialized car finance companies. Such flexi-finance holds indispensable and heavily proportioned value in everyone’s portfolio. To provide completely liquid moneys is something very few financial schemes can boast of.
It is important to plan future financial requirements and, one must discipline funds so that they perform efficiently when they are most required. Pay us a visit at our office and we would be delighted to make a financial plan that best suits your future needs.