how do chit funds work?

Question

I want to kmow how chit fund companies in india work - the modus operandi, their business model etc

Answer 1

Chit funds are like a loaded fund. You subscribe to an annuity say for exapmple Rs. 100 for 12 instalments. At the vatamoruthi you will get Rs.1100 instead of 1200 the 100 being the load which the chitfund promoters pocket. After certain period say after 4 instalments you can pull out a lump sum at a discount say Rs.1000 or closer by where you will have to keep on paying your instalments after that and some penalty along with your instalmets. These are places where the promoters make money.
If it is a chit fund with a luck dip then if you get the lucky draw you can pocket the whole amount in the middle way and need pay regular instalments after that without penalty. The penalty is like a prepayment load as in Mortgages in US.
The business model is very visible from my explanation.
'Oonu Kazinjo'?