"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 group approval of bye-laws and commencement
certificate from the office of the Registrar, Chit Funds, is must. The share of a
subscriber in a chit is also known as ticket.