Chit Fund schemes compile a heterogeneous group of individuals to take advantage of gains from trade. Schemes will vary in bill price and length and completely different mixtures of them will yield different interest rates for loans and savings. Members, in general, don’t observe ex-ante the pay-off of taking part during a specific cluster because it usually depends on the alternatives created by alternative Participants.
Once members are a part of a theme they’re fast sure the complete length, however, they’re unengaged to select ex-ante the bill price and also the length. During a given theme, each Participant contributes a set quantity every month to the “pot”.
Typically the “pot” of the primary or fifth month is unbroken by the bill company for administration functions whereas the “pot” for the remaining months is auctioned off to the best bidder. The interest rates for loans and savings will vary from bill price and length of the theme, and month
In general, members in desperate want of funds bid within the early stage of the theme, whereas members who want to save lots of bid towards the tip of the theme.