How Chit Fund Cycle Works

Working of the Chit Fund Process

A chit fund works through a simple monthly cycle. A group of members contributes a fixed amount every month, and the total collection forms the chit value for that month. This structure supports disciplined saving and access to funds when needed.

Step 01

Members Join

Let us assume 20 members join a chit group and each member contributes Rs. 5,000 per month.

Step 02

Chit Value Forms

This makes the monthly chit value Rs. 1,00,000. Since there are 20 members, the chit group usually runs for 20 months.

Step 03

Monthly Auction

Every month, an auction is conducted among the members. Members who wish to receive the chit amount can place a bid by offering a discount on the chit value.

Step 04

Prize & Dividend

The member who offers the highest discount becomes the prized subscriber for that month, and the remaining discount is distributed among all members as dividend after commission.

A Simple Illustration

Example based on the document flow

For example, if the highest bid is Rs. 20,000, the prize amount will be Rs. 1,00,000 – Rs. 20,000 = Rs. 80,000. The winning member receives Rs. 80,000 as the prize money.

From the discount amount, the foreman’s commission is deducted as per the applicable terms. Foreman’s commission is calculated as a percentage of the chit value and is deducted from the discount amount.

1
Foreman’s Commission and Dividend
Assuming the foreman’s commission is 5% of Rs. 1,00,000, the commission will be Rs. 5,000.
2
Remaining Discount
So the calculation for the foreman’s commission will be: Rs. 20,000 – Rs. 5,000 = Rs. 15,000.
3
Dividend to Members
This remaining amount is shared equally among all 20 members as dividend. So, each member receives Rs. 15,000 ÷ 20 = Rs. 750.
4
Cycle Continues
Members pay their instalments, an auction is held, one member receives the prize amount, and the remaining discount is distributed among all members as a dividend.

This dividend helps reduce the effective instalment burden for the members in the next month’s contribution.

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Dynamic chit cycle illustration

This section is a dynamic illustration of the chit fund cycle based on the example and concepts provided in your document. It helps visualize chit value, prize amount, foreman’s commission, dividend pool, and dividend per member.
Monthly Chit ValueRs. 1,00,000
Prize AmountRs. 80,000
Foreman CommissionRs. 5,000
Dividend PoolRs. 15,000
Dividend Per MemberRs. 750
Usual Group Duration20 months
Why It Works

A practical system that supports financial discipline while also offering flexibility.

A chit fund cycle combines regular savings with access to funds when needed. At MRTP Chit Fund 17 Pvt. Ltd., we are committed to making the chit process clear, transparent, and easy to understand.