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A chit fund system contains a group of users, called subscribers. The Chit fund organizer or a company , brings the group of people together and monitors the activities of the group. For this reason, the organizer is either gets compensated every month or at withdrawal time. (The fee may be omitted in informal situations.) The fund starts at an announced date and continues for the number of months equal to the number of subscribers. Each month, the subscribers put in their monthly installments into the pot. Then, an open auction is conducted to determine the lowest sum a subscriber is willing to take that month. For example, if the monthly installment is Rs.1000 and there are 50 members, the pot in the first month will contain Rs.50,000. If the auction determines a winner who is willing to accept Rs.45,000 for that month, the surplus Rs.5,000 is distributed to the other 49 members, after subtracting fees paid to the organizer. The subscriber who won the auction was able to access Rs.45,000 in the first month and the others benefited in their share of the Rs.5,000 surplus. The process gets repeated on its own, giving the auction amount to one user every month. All of the other users, including those users who took their share in a previous month, also continue paying the monthly installments. It works as a savings account, because each user contributes every month and may retrieve a large sum in the future whenever he wants while receiving their share of the surpluses amounts. Variations of the system can omit the bidding part, instead selecting a winner by choosing a chit out of a box.
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