Chit s a mutually beneficial scheme where in a group of people contribute towards the chit value and one member from the group is given the prize amount and the dividends are distributed to all the other members. For Example if we consider a chit value of Rs.100000/- with 50 members in the group each member has to contribute Rs.2000/- where by (50 X 2000) Rs.100000/- is collected. The auction is conducted in which the members participate and the person who discounts the maximum is declared as the prized subscriber. If there are more than one participant for maximum discount the Successful Bidder will be determined by way of lottery. Where in, the tokens bearing the numbers allotted to the members is put into a box and one token is drawn by any of the member present in the auction and thus, the member whose number is mention on the drawn token will be declared as the Successful Bidder. 40% is the maximum bid allowed, which means a person foregoes Rs.40000/- and the balance Rs.60000/- is paid to the prized subscribers. Out of 40% discount 5% goes to the company towards company's commission for conducting the chit and balance of the discount amount is distributed equally amongst all members of the group. That is 35 % is distributed to all the members by which next month they have to contribute (Rs.2000/- - Rs.700/-) = Rs.1300/- only and Rs.700/- is declared as dividend for that month. When there are no maximum bidders, then the members will bid in the open auction and the person who bids the highest is declared as Successful Bidder. For Example: Suppose, in the 10th month the Successful Bidder was declared at 35%, then all members of the group will get a dividend of Rs.600/-each i.e. (Rs30000/-divided among 50 members) and each member has to pay Rs.1400/- towards Instalment. Therefore the members have to pay the instalment amount less the dividend, the dividends earned workout to be the interest on the Instalment payments made by the member. Successful Bidder is supposed to give the required sureties depending on the future liability of the chit. Only Non-Prized Subscribers whose payments are up to date can participate in the auctions. Every month there is a Successful Bidder who gets his prized amount on submission of required Guarantors. The prized subscriber has to continue to pay the monthly instalments till the termination of the chit. Those members who do not want to draw the chit can contribute to the chit and after the 40th month if there are no bidders for the auction, the auction is decided by lot among the Non Prized Subscribers and the Successful Bidder is paid the Prize Amount. They either have options to submit sureties or prefer Future liability deducted upon which balance amount is paid from the Prized amount. The dividend accrued for the 50 months are the returns on investment for the monthly deposit are made to their accounts

Registered chit funds are governed by the stringent provisions of the Chit Funds Act, 1982 and the money invested in these chits are very safe. The Chit Fund companies are required to keep an amount equivalent to 100% of the aggregate chit amount of all the chits conducted by them in fixed deposits with banks in the name of the Registrar of Chits for the entire duration of the chit.