Guideline - Chit Zone

Many of you who are new to Chits may wonder about their working mechanism. We will explain to you in simple steps how exactly the process of chit works in a typical real life scenario. Go through the illustration given below to understand the working mechanism of Chits in simple terms

Responsibilities of the Foreman or the Chit Company

  • The Foreman gets the chit registered with the Registrar of Chits by depositing the total Chit Value as Security.
  • 100% of the Security amount paid by the Chit Company can be withdrawn after the 50 months Term Period of the Chit is over provided all the Chit Subscribers are paid the amounts due to them in a complete manner


This security deposit is taken from the Chit Company to safeguard the interests of the Chit Subscribers


Terminologies to understand in a typical Chit scenario

A new chit group is started

  • The total value of the chit is 5 Lakhs – This is termed as the CHIT VALUE
  • 50 people are participating in the same – These 50 people are termed as CHIT SUBSCRIBERS
  • The duration of the chit is 50 months – These 50 months is termed as TERM PERIOD
  • The maximum monthly contribution made by each subscriber per month is Rs. 10,000/- (5 Lakhs divided by 50 members = Rs. 10,000/-) - This is termed as SUBSCRIPTION AMOUNT
  • The maximum bid percentage is to be set by the Chit Company and it is usually around 30% to 40%. This is at the sole discretion of the Chit Fund Company. For example, in our case, if the maximum permissible percentage is 35%, the subscriber bids for Rs. 1,75,000/- maximum. This Rs. 1,75,000/- is termed as CHIT DISCOUNT
  • 5% is taken by the Foreman or the Chit Company as their Commission. 5% of 5 Lakhs makes it Rs. 25000/-. – This is termed as CHIT COMMISSION
  • The balance Rs. 1,50,000/- is given to the bidding subscriber. For the benefit of the other Chit Subscribers in the group, this Rs. 1,50,000/- is divided by the total number of subscribers which is 50.(Rs. 1,50,000/50 people = Rs. 3000/- per head) – This Rs. 3000/- is termed as CHIT DIVIDEND or CHIT DISCOUNT. This Rs. 3000/- will be discounted on the next monthly subscription. This means all the other Chit Subscribers will pay only Rs. 7,000/- (Rs. 10,000/- original Subscription amount minus Rs. 3,000/- Chit Discount) in the following month


Gathering 50 people informing them about the conditions involved in the Chit, is the responsibility of the Foreman. FOREMAN = CHIT FUND COMPANY or REPRESENTATIVE from the Chit Fund Company