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Chit Fund is a process of contribution of monthly subscription by the specific number of people for the same number of months and agreed value of monthly subscription. Out of the number of people in the group one can avail funds every month by participating in the auction and the auctioned amount less foremen commission will be distributed to each member in the group. This process goes on till the last month then only one member remain to avail funds full amount less commission.

The person or company who conduct chits are called FOREMAN, the members in the group are called SUBSCRIBERS, the amount availed after auction is called PRIZE MONEY. 

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EXAMPLE:

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For 100000 chit of 20 members for twenty months and foremen commission is @ 5%.

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Let’s assume that a chit fund scheme has 20 members, each paying a monthly instalment of ₹5000 to have a first-month pot of ₹1,00,000. When the auction is announced, the member who bids to take home the least amount of the chit fund wins the bid.

Let’s assume the winning bidder agrees to accept ₹70,000 of the total chit fund value for that month, the rest of the amount – ₹30,000 – is distributed equally amongst the other 19 members, after subtracting the organizer’s fees-₹5000. So, the next month's contribution will be 3750 instead of ₹5000 and hence, a saving of 1250. This process will go on for subsequent months but only the amount of auction and dividend will be different.

 

Some occasions the same maximum bid amount of 30% will be claimed by more than one subscriber then lots shall be taken and winner will be eligible for the prize money.

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