Total members: 20
The circle is closed. Twenty places, and every member takes the pot exactly once across the term.
The scheme
The chit scheme, and how it works
Twenty members, twenty months, one pot a month, and an auction that decides who takes it. Every figure below is the standard example we use when explaining a chit at the counter, and every rupee in it is accounted for.
Scheme overview
The shape of the commitment
Everything in a chit is fixed at the start except who wins each month. That is what makes it possible to decide sensibly before joining.
Duration: 20 months
One month for each member. The scheme ends when the last member has had their turn.
Monthly payment: ₹5,000
Per member, per month, before any dividend is applied. The dividend reduces it in practice.
Monthly pool: ₹1,00,000
Twenty members × ₹5,000. The full amount available to one member each month.
Your commission: ₹5,000
Taken from the discount at auction, not from the instalment. In the 25% example below, that is the foreman's share.
How the auction works
The bid, the discount and the dividend
This is the part that makes a chit different from every other savings product, and the part worth understanding properly before you join one.
Members bid by offering a discount
Anybody who wants the pot this month states a percentage of it they are willing to give up. Nobody has to bid, and in most months only a few members do.
The largest discount wins
The member prepared to forgo the most takes the pot. That is the auction: the price of getting the money now is paid to the members who are content to wait.
The winner receives the pot less the discount
A 25% bid against a ₹1,00,000 pot pays out ₹75,000. The ₹25,000 that was bid away does not vanish, and it does not stay with us.
Our commission comes out of the discount
₹5,000 of that ₹25,000 is the foreman's commission for running the chit — collection, auction, records and payout. It is fixed and it comes from the discount, never from your instalment.
The rest is divided among every member
The remaining ₹20,000 is split equally across all twenty members — including the one who just won — so everybody receives ₹1,000 that month.
Your next instalment falls
That ₹1,000 dividend comes off your next ₹5,000 payment, so you pay ₹4,000. A month with a big bid is a cheaper month for everybody who waited.
The saver's view
If you never bid until the end
You pay in every month and collect a dividend every month that somebody else bids. Over the term those dividends reduce what you actually pay, and at the end you take a pot that has usually attracted a smaller discount than the early ones.
This is the closest a chit comes to behaving like a savings scheme, and it is why patient members often do best. What you give up is flexibility: you have committed the instalment for the whole term whether or not the money is convenient in month eleven.
Compare it with a recurring deposit
The borrower's view
If you need the pot in month three
You bid, and if your discount is the largest you take the money. On a 25% bid you receive ₹75,000 having paid in ₹15,000 so far, and you keep paying the instalment for the remaining seventeen months.
The discount is the cost of getting it early, and it is transparent in a way that few other arrangements are: you can see exactly what you gave up and exactly who received it. Compare that with the total cost of a personal loan over the same period before deciding which is dearer.
Compare it with a personal loan
About the scheme
Questions about the mechanism
Are the figures on this page fixed?
They are the standard twenty-member example we use to explain the mechanism, not a price list. Chit value, member count, term and instalment vary by plan; the arithmetic works the same way at every size, which is what the calculator is for.
What if two members bid the same discount?
The chit agreement sets out how a tie is resolved, and you should read that clause before joining any chit — including this one. It is one of the questions the article on judging a chit tells you to ask.
What if nobody bids in a month?
The agreement covers this too, and the usual outcome is that the pot goes to a member who has not yet taken one, with no discount and therefore no dividend that month. It is a normal event, not a failure.
Does the dividend change every month?
Yes, because it depends on the discount bid that month. Early months in a chit typically attract larger discounts and therefore larger dividends; later months usually attract smaller ones.
Is the commission ever taken from my instalment?
No. It comes out of the discount at auction. In a month where no discount is bid, there is no dividend and the commission arrangement is as set out in the agreement — which is, again, a document worth reading rather than a promise worth hearing.
What happens if a member stops paying?
A chit depends on every member continuing, which is why the agreement sets out what happens on default and why membership is not open to everybody who asks. Ask us how we handle it; it is a fair question and there is a written answer.
Put your own numbers through it
The calculator on this site takes a chit value, a member count and a winning bid and shows the payout, the commission, the dividend and what the month costs you.