Basic Knowledge About Chit Fund Business

"Chit" means a transaction ( whether called chit fund, chit, kuri or by any other name), by which the foreman enters into an agreement with a number of subscribers that everyone of them shall subscribe a certain sum for a certain period and each subscriber in his turn as determined by lot or by auction, shall be entitled to a prized amount.

Example: 25 subscribers agree to subscribe an amount of Rs.4,000/- for 25 months i.e. for a total chit value of Rs.1,00,000/-, each subscriber will get his chit amount in his turn as determined by draw of lot or by auction. During auction all non-prized subscribers bid by allowing percentage of subscription to be forgone. The highest bidder i.e. who allows maximum percentage to subscribers is given the chit amount. The amount, foregone by the subscriber is distributed as dividend amongst all the subscribers in every draw, after deducting 5% commission/remuneration to be paid to the foreman of the company. Maximum bid is normally between 20% to 40% and the duration of chit is normally between 12 months to 50 months. In case there are more than one highest bidder in an auction, then draw of lots is made and chit amount given to the successful subscriber.

These 25 subscribers constitute a Chit Group” and the chit fund company can run many such groups. For each chit group, previous sanction, registration of chit agreements and commencement certificate from the office the Registrar, Chit Funds, is a must. The share of a subscriber in a chit is also known as ticket.