The Foreman or Chit Fund Company identifies and gathers 50 individuals who are interested in investing in the chit group. These individuals are termed as subscribers.
The chit group's value is determined and set at 500,000 currency units. This amount represents the total pool of funds that will be circulated among the subscribers throughout the chit period.
The chit period, which is the duration of the chit group, is established as 50 months. This means that the entire process, from the start to the end of the chit group, will span over 50 months.
Each subscriber agrees to contribute a fixed amount towards the chit value every month. This fixed amount remains consistent for all subscribers throughout the chit period.
At the beginning of each month, an auction is conducted among the subscribers. During the auction, subscribers bid for the right to receive the chit value for that specific month. The subscriber who offers the highest discount (willing to accept the smallest portion of the chit value) wins the auction.
The subscriber who wins the auction for a particular month receives the entire chit value for that month. The amount received is reduced by the discount they bid during the auction. This amount can be utilized by the auction winner for their personal financial purposes.
Subscribers who did not win the auction continue to make their fixed monthly contributions. The auction process repeats every month, allowing each subscriber a chance to win and receive the chit value.
As the chit period progresses, fewer subscribers remain to participate in the auctions. Eventually, in the last month of the chit period, the remaining chit value may be disbursed among the remaining subscribers, or it may be allocated based on predefined rules. By following these steps, chit groups provide a structured and systematic way for individuals to save, invest, or borrow money within a group setting over a specified period.
