Chit-Funds are a popular mode of saving cum borrowing from time immemorial. The concept of Chit Fund is based upon the principal of mutuality, whereby a group of persons participate in a scheme to contribute fixed periodical amounts and distribute the amount so collected, in rotation, to each of the participants. The foreman i.e., the Chit Fund Company itself carries on this scheme of a chit fund.

The chit fund company collects specific periodic subscriptions from each member of a chit group. The total of the periodic subscriptions, minus company commission, is given out periodically as bid amounts or prized money/amount to any one member of the chit group, identified by either a lot or auction.

The number of periodical installments will be equal to the number of subscribers in a chit group. Each subscriber will receive the bid amount or prized/money amount only during the chit period. All subscribers including those who have already received the prized/bid amount, shall continue to contribute till the end of the chit scheme period. Since the prized subscriber receives the prized/bid amount in excess of the amount he has contributed and since he has to pay future installments, the chit fund company takes sureties/guarantees on behalf of the prized subscriber – depending upon the future liability, at the time of such subscriber, becoming a prized subscriber.