A chit fund comprises a group of members known as subscribers. Each subscriber contributes a monthly amount towards a total collection known as “chit fund value” or “pot”.

The subscribers make these monthly contributions for the number of months equivalent to the number of subscribers in the group.

An auction is held every month where subscribers bid for a percentage of money from the chit fund value (pot). This auction is conducted by the foreman (in other words, the chit fund company).

The subscriber who bids for the maximum permissible discount on the chit value wins the monthly prize money (chit value minus discount). 5% or 7% of the chit/pot value is the foreman’s commission. The balance amount of discount after this deduction of foreman’s commission is distributed equally among all subscribers as chit dividend.