Every chit fund term explained clearly — from auction mechanics and foreman commission to legal definitions and regional variants. 49 terms defined using the Chit Funds Act 1982, the 2019 Amendment Act, and established industry practice.
Overdue subscription amounts owed by a subscriber who has missed one or more monthly instalments. Under the Chit Funds Act 1982, arrears attract penalty interest as stipulated in the chit agreement. A subscriber in arrears may be barred from participating in the auction until dues are cleared. Persistent arrears can lead to the foreman declaring the subscriber a defaulter.
Auction
Scheme Mechanics
The monthly competitive bidding process through which one subscriber wins the chit prize. Subscribers bid by offering to forego a portion of the chit value (the bid discount). The subscriber willing to accept the lowest prize money wins. Under the Chit Funds Act 1982, auctions must be conducted at the registered time and place; all bids are recorded in the minutes book for regulatory scrutiny.
B
Beesi
Regional & Variants
An informal, unregistered rotating savings scheme popular in North India, particularly in Rajasthan, Uttar Pradesh, and Gujarat. Members contribute a fixed amount monthly; one member receives the full kitty each month, typically by draw or rotation rather than auction. Beesi groups are usually small (10–25 members), operated informally among neighbours or colleagues, and are not governed by the Chit Funds Act 1982.
Benefit Chit
Regional & Variants
A chit fund variant in which a portion of the bid discount is distributed as a benefit or dividend to all non-prized subscribers each month, rather than being retained entirely by the foreman. Common in Kerala and Tamil Nadu, benefit chits offer immediate monthly returns to waiting members, making them attractive as hybrid savings-cum-dividend instruments within the framework of the Chit Funds Act 1982.
Bid Discount
Scheme Mechanics
The amount a subscriber agrees to forego from the chit value in order to win the auction. For example, in a ₹1 lakh chit with 20 members, if a subscriber bids ₹30,000, the bid discount is ₹30,000. The foreman deducts commission (up to 7% of chit value) from the bid discount; the remaining balance is distributed as dividend to all members. Maximum bid discount is capped at 40% of chit value under the Chit Funds Act.
C
Certificate of Registration
Legal & Regulatory
A mandatory government-issued certificate that authorises a foreman to conduct a chit fund. Under Section 4 of the Chit Funds Act 1982, no chit shall be commenced or conducted without registration with the Registrar of Chit Funds. The certificate specifies the chit value, number of subscribers, duration, and other terms. Operating without a valid Certificate of Registration is a criminal offence under the Act.
Chit Agreement
Legal & Regulatory
The legally binding contract executed between the foreman and all subscribers before commencement of the chit. Under Section 9 of the Chit Funds Act 1982, the chit agreement must specify the chit value, instalment amount, number of subscribers, auction rules, foreman commission rate, and penalty clauses. The document must be stamped, witnessed, and filed with the Registrar. It is the primary legal instrument governing all chit transactions.
Chit Fund
Scheme Mechanics
A financial instrument defined under Section 2(b) of the Chit Funds Act 1982 as a transaction where a foreman enters into agreement with a specified number of persons who each subscribe a certain sum in periodical instalments over a definite period, and each subscriber shall be entitled to a prize amount determined by lot, auction, or tender. Chit funds uniquely combine saving and borrowing within a single scheme.
Chit Funds Act 1982
Legal & Regulatory
The central legislation enacted by Parliament of India that governs all registered chit fund operations across the country. The Act defines chit funds, mandates registration with state governments, caps foreman commission at 5% of chit value (subsequently raised to 7% by the Chit Funds Amendment Act 2019), limits bid discounts to 40%, requires security deposits from foremen, and prescribes penalties for violations. States such as Kerala have supplementary legislation (Kerala Chitties Act 1975) that runs concurrently with this Act.
Chit Funds Amendment Act 2019
Legal & Regulatory
An amendment to the Chit Funds Act 1982 passed by Parliament to modernise chit fund operations. Key changes include: enabling digital/electronic transactions, allowing video-conferencing for auctions, permitting online subscriber onboarding with e-KYC, and raising the foreman commission cap from 5% to 7% of chit value. The amendment was a direct response to the growth of online chit fund platforms and the need to bring digital operators under the regulatory framework.
Chit Tenure / Duration
Scheme Mechanics
The total period over which a chit fund runs, equal to the number of subscribers multiplied by the instalment frequency. For example, a chit with 24 members holding monthly auctions has a 24-month tenure. Under the Chit Funds Act 1982, the tenure must be clearly stated in the chit agreement and the Certificate of Registration. The chit terminates only when all subscribers have received the prize amount and all dues are settled.
Chit Value
Scheme Mechanics
The total face value of the chit, calculated as: Chit Value = Monthly Instalment × Number of Subscribers. For example, if 20 subscribers each pay ₹5,000 per month, the chit value is ₹1,00,000. The chit value is the maximum prize amount (before any bid discount) and forms the basis for calculating foreman commission, security deposit, and regulatory thresholds. It must be disclosed in the Certificate of Registration.
Chitty
Regional & Variants
The term used in Kerala for a chit fund, governed by the Kerala Chitties Act 1975 in addition to the central Chit Funds Act 1982. Chitties in Kerala are among the most regulated and formalised in India, with state-owned government chit funds operating large formal chitty schemes. The Kerala Act prescribes detailed auction procedures, security deposit norms, and subscriber protections that complement central regulations.
Committee / Kitty
Regional & Variants
Informal names for unregistered rotating savings and credit associations (ROSCAs) common across India. In a ‘committee,’ members contribute a fixed monthly amount and one member collects the entire pool each month, typically by draw or mutual agreement. Unlike registered chit funds, committees have no legal framework, no foreman commission, no regulatory oversight, and offer no subscriber protections under the Chit Funds Act 1982.
D
Default / Defaulter
People & Roles
A subscriber who fails to pay one or more monthly instalments as per the chit agreement is classified as a defaulter. Under the Chit Funds Act 1982, the foreman may recover arrears with penalty interest from the defaulter. If a prized subscriber defaults after receiving the prize, the foreman can invoke the surety/guarantor’s liability. Persistent default can lead to legal recovery proceedings and affects the dividend calculations for all remaining subscribers.
Digital Chit Fund
Legal & Regulatory
A chit fund conducted through electronic means, legitimised by the Chit Funds Amendment Act 2019. Digital chit funds may onboard subscribers via e-KYC, conduct auctions through video-conferencing, collect instalments via UPI/NEFT, and maintain digital chit agreements. All digital operations must comply with the Chit Funds Act 1982 and require the same Certificate of Registration from the State Registrar. Registered operators and digital platforms operate under this framework.
Dividend / Rebate / Benefit
Scheme Mechanics
The share of the bid discount distributed to non-prized subscribers each month. Calculated as: Dividend = (Bid Discount − Foreman Commission) ÷ Number of Subscribers. For example, if the bid discount is ₹20,000 and foreman commission is ₹5,000 in a 20-member chit, each subscriber receives ₹750 as dividend. Dividend reduces the net monthly instalment for non-prized subscribers and represents the savings return on the chit.
Draw / Lot
Scheme Mechanics
An alternative prize allocation method used when no subscriber bids in the monthly auction, or in informal chits. A draw (lottery) randomly selects one subscriber to receive the chit prize at full face value (no discount). Under the Chit Funds Act 1982, draw-based chits are permissible but auction-based chits are more common as they generate bid discounts that benefit other subscribers. The draw method is often used in the final instalment when only one subscriber remains unprized.
E
Effective Yield / Return
Financial Terms
The annualised return earned by a subscriber who does not take the prize early, calculated by accounting for all dividends received over the chit tenure relative to total instalments paid. A subscriber in a ₹1 lakh, 20-member chit who collects the last prize at full value and earns monthly dividends can achieve effective yields of 8–14% per annum in illustrative scenarios — actual returns depend on auction outcomes and are not guaranteed. This is illustrative only and not a return projection. Effective yield makes chit funds competitive with fixed deposits.
F
Foreman / Organiser
People & Roles
The registered entity (individual, company, or cooperative) responsible for organising and running the chit fund. Defined under Section 2(j) of the Chit Funds Act 1982, the foreman collects monthly instalments, conducts auctions, disburses prize amounts, maintains statutory records, and files returns with the Registrar. The foreman is entitled to commission not exceeding 7% of the chit value per instalment (raised from 5% by the 2019 Amendment Act) as compensation for services rendered.
Foreman Commission
Financial Terms
The fee charged by the foreman for organising and managing the chit fund, capped at 7% of the chit value per instalment under the Chit Funds Amendment Act 2019 (previously 5% under the 1982 Act). For a ₹1 lakh chit, maximum commission per instalment is ₹7,000. Commission is deducted from the bid discount before dividend distribution. The 7% cap is a statutory maximum; many foremen charge less in competitive markets.
G
GST on Chit Commission
Financial Terms
Goods and Services Tax applicable to the foreman’s commission income from conducting chit funds. Chit fund foreman services are taxable at 12% GST on the commission amount. For example, on a ₹7,000 foreman commission, GST of ₹840 is payable by the foreman. GST is collected by the foreman and deposited with the government. Subscribers cannot claim input tax credit on this GST as chit participation is generally not a business expense.
Guarantor / Surety
People & Roles
A third party who provides a guarantee to the foreman that a prized subscriber will continue paying monthly instalments after receiving the prize money. Under the Chit Funds Act 1982, a prized subscriber must provide security (which may include a surety) before receiving the prize. The guarantor is legally liable for the remaining instalments if the prized subscriber defaults. Guarantors are typically required to be fellow subscribers or persons of known financial standing.
I
Income Tax on Chit Income
Financial Terms
Tax treatment under the Income Tax Act 1961 (Section 56). Dividends/rebates received by subscribers are taxable as ‘Income from Other Sources.’ The prize money received is taxable under Section 56(2) of the Income Tax Act 1961 to the extent it exceeds the subscriber’s own contributions paid up to that point. Dividends/rebates are also taxable as ‘Income from Other Sources.’ Foreman commission income is taxable as business income. Consult a tax professional for your specific situation. Subscribers should maintain chit statements for accurate income tax filing each year.
K
Kuri
Regional & Variants
Another term for chit funds used in Kerala and parts of Tamil Nadu, often interchangeable with ‘chitty.’ Kuri can also refer to older, informal rotating savings groups that predate formal chit fund legislation. In modern usage, kuri typically refers to registered chit funds governed by the Kerala Chitties Act 1975. The word derives from Malayalam, reflecting the deep cultural roots of chit fund participation in South India.
M
Maximum Discount
Scheme Mechanics
The statutory cap on the bid discount allowed in any single auction, set at 40% of the chit value under the Chit Funds Act 1982. For a ₹1 lakh chit, no subscriber can bid a discount exceeding ₹40,000. This cap protects subscribers from predatory bidding that would reduce the prize amount below viable levels. The maximum discount ensures that a subscriber who wins the auction receives at least 60% of the chit value as prize money.
Minimum Bid
Scheme Mechanics
The lowest discount amount at which a subscriber may open bidding in the monthly auction. Unlike the maximum discount cap (40% of chit value), the minimum bid is typically established in the chit agreement by the foreman. If no subscriber bids or all bids are withdrawn, the prize is allocated by draw (lot). Minimum bid rules vary by operator; some chits allow zero-discount bids, resulting in full face-value prizes allocated by lottery among eligible subscribers.
Miscellaneous Chit
Regional & Variants
A chit fund variant that combines auction and draw elements, or uses non-standard structures permitted under state regulations. Miscellaneous chits may include features like guaranteed minimum prizes, fixed rotation schedules for certain subscribers, or special early-exit provisions. The Chit Funds Act 1982 permits miscellaneous chits provided the foreman obtains appropriate registration and all terms are fully disclosed in the chit agreement filed with the Registrar.
N
Net Present Value of a Chit
Financial Terms
The time-adjusted value of all cash flows in a chit fund subscription — instalments paid out and prize/dividends received — discounted to today’s terms. NPV analysis helps subscribers compare chit fund returns against alternative investments like fixed deposits or mutual funds. A subscriber who takes the prize in month 1 gets full ₹1 lakh immediately (high NPV as borrower); one who waits until the final month gets full value plus cumulative dividends (high NPV as saver).
Net Prize Amount
Scheme Mechanics
The actual cash received by the auction winner after all deductions. Formula: Net Prize Amount = Chit Value − Bid Discount. Foreman commission is deducted from the bid discount before distributing dividends to non-prized subscribers, not from the winner’s prize. For a ₹1 lakh chit with ₹20,000 discount: Net Prize = ₹80,000. Dividend distributed to each non-winning subscriber is: (Bid Discount − Foreman Commission) ÷ Number of Subscribers.
Nidhis
Regional & Variants
Non-banking financial companies (NBFCs) recognised under Section 406 of the Companies Act 2013, operating as mutual benefit societies that accept deposits and provide loans exclusively among members. While similar to chit funds in their member-centric model, nidhis do not conduct auctions and are regulated by the Ministry of Corporate Affairs. Unlike chit funds under the Chit Funds Act 1982, nidhis function more like cooperative banks and are common across South India.
Nominee
People & Roles
A person designated by a subscriber to receive the prize money or accumulated value in the event of the subscriber’s death during the chit tenure. Under the Chit Funds Act 1982 and most state regulations, nomination is a mandatory disclosure in the chit agreement. Upon a subscriber’s death, the nominee continues the subscription or receives the outstanding balance after deducting dues. Nominees must be registered with the foreman at the time of joining.
Non-prized Subscriber
People & Roles
A subscriber who has not yet won the chit auction and continues to pay monthly instalments, receiving monthly dividends from bid discounts that effectively reduce their net contribution. Under the Chit Funds Act 1982, non-prized subscribers have the right to participate in all auctions, inspect the foreman’s books, and receive a fair share of the bid discount. Their status transitions to ‘prized subscriber’ once they win an auction.
P
Penalty Interest
Financial Terms
Interest charged to a subscriber for delayed or missed monthly instalment payments, as stipulated in the chit agreement. The penalty rate must be disclosed in the chit agreement and approved by the Registrar. Typical rates range from 12–24% per annum on overdue amounts, applied from the due date until actual payment. Excessive penalty clauses are subject to review by the Registrar to protect subscriber interests under the Chit Funds Act 1982.
Prize Money
Scheme Mechanics
The amount disbursed to the winning subscriber in each auction instalment. Formula: Prize Money = Chit Value − Bid Discount. If the chit value is ₹1 lakh and the winning bid discount is ₹25,000, the prize money is ₹75,000. The prize money represents the gross winnings before foreman commission is deducted. Under the Chit Funds Act 1982, prize money must be disbursed within the time stipulated in the chit agreement.
Prized Subscriber
People & Roles
A subscriber who has already won the chit auction and received the prize money but must continue paying all remaining monthly instalments until the chit’s conclusion. Under the Chit Funds Act 1982, a prized subscriber must provide security (surety, collateral, or post-dated cheques) to the foreman before receiving the prize. The prized subscriber is no longer eligible to bid in future auctions but continues contributing to dividends for non-prized members.
R
Registrar of Chit Funds
Legal & Regulatory
The government official designated under Section 61 of the Chit Funds Act 1982 by each state government to oversee all chit fund registrations, inspections, and regulatory compliance within the state. The Registrar grants Certificates of Registration, approves chit agreements, conducts inspections, adjudicates subscriber complaints, and can cancel registrations for violations. States like Tamil Nadu, Kerala, and Andhra Pradesh maintain well-established Registrar offices with online compliance portals.
Regulatory Filing
Legal & Regulatory
Periodic statutory reports that registered chit fund foremen must submit to the Registrar of Chit Funds. Under the Chit Funds Act 1982, foremen must file: commencement reports before the first instalment, monthly auction minutes, annual balance sheets, subscriber default reports, and chit closure reports. Failure to file returns on time attracts penalties under the Act. Digital filing portals are available in several states following the 2019 Amendment Act.
ROSCA
Regional & Variants
Rotating Savings and Credit Association — the global academic term for informal savings circles where members contribute a fixed amount periodically and one member receives the entire pool in rotation. India’s chit funds, Kenya’s chamas, Japan’s tanomoshi-kō, and West Africa’s susus are all ROSCA variants. Unlike Indian chit funds, most global ROSCAs lack formal regulation or auction mechanisms. The World Bank recognises ROSCAs as critical financial inclusion tools for low-income populations.
Rotation
Scheme Mechanics
The sequential process by which each subscriber in the chit receives the prize exactly once over the full chit tenure. In a 20-member chit, there are 20 monthly auctions and each subscriber wins the prize in exactly one month. The order of rotation is determined by auction results (highest bidder wins earliest) or by draw. Rotation ensures that all subscribers eventually receive the chit value, making the chit fund both a savings instrument and a credit facility simultaneously.
S
SACHET Portal
Legal & Regulatory
The RBI-managed online platform (sachet.rbi.org.in) where investors can verify the legitimacy of financial entities, including chit fund operators, and file complaints against unauthorised or fraudulent schemes. SACHET stands for ‘Centralised Web Portal for Collection and Sharing of Information on Fraudulent Entities.’ Investors should verify that any chit fund operator appears in the state Registrar’s database before investing, and report suspicious entities via this portal.
Saving vs Credit Component
Financial Terms
The dual financial nature of a chit fund subscription. The saving component refers to instalments paid by non-prized subscribers — their contributions accumulate toward a future payout. The credit component refers to the prize received by a subscriber who wins the auction early, effectively borrowing from future instalments. This duality makes chit funds unique: the same instrument functions as a savings account for non-prized subscribers and a low-cost loan for prized subscribers.
Security Deposit
Legal & Regulatory
A mandatory deposit that the foreman must maintain with the Registrar of Chit Funds as financial security for subscribers. Under Section 14 of the Chit Funds Act 1982, the foreman must deposit an amount equivalent to the chit value of one instalment (or such higher amount as prescribed) with the Registrar before commencing the chit. This deposit protects subscribers in case of foreman insolvency. The security deposit is released only after the chit concludes and all obligations are discharged.
State Registrar
Legal & Regulatory
The state-level regulatory authority for chit funds, operating under the Finance or Cooperative Department of each state government. States with significant chit fund activity — Tamil Nadu, Kerala, Andhra Pradesh, Telangana, and Karnataka — have dedicated Registrar offices. States may also enact supplementary legislation (e.g., Kerala Chitties Act 1975, Tamil Nadu Chit Funds Act 1961) that operates alongside the central Chit Funds Act 1982 and may impose stricter standards on local operators.
Subscriber / Member
People & Roles
Any individual, firm, or company that joins a registered chit fund and commits to paying monthly instalments for the full tenure of the chit. Defined under Section 2(o) of the Chit Funds Act 1982, subscribers have the legal right to participate in auctions, receive dividends, inspect chit records, and lodge complaints with the Registrar. A single subscriber may hold multiple tickets in one chit (subject to the foreman’s terms), entitling them to proportionally larger prizes and dividends.
Subscription / Monthly Instalment
Scheme Mechanics
The fixed periodic payment made by each subscriber to the foreman for the duration of the chit tenure. The subscription amount equals Chit Value ÷ Number of Subscribers. For a ₹1 lakh chit with 20 members, the monthly subscription is ₹5,000 per member. Subscribers who have won the auction pay the full subscription amount without deducting dividends, ensuring the prize pool for remaining non-prized members is fully maintained throughout the chit tenure.
T
Turi
Regional & Variants
A regional term for chit funds used in parts of Andhra Pradesh, particularly in rural and coastal communities. Like Kuri in Kerala, Turi refers to traditional savings circles that predate formal chit fund legislation. Modern Turi schemes in Andhra Pradesh are registered under the Chit Funds Act 1982 and the AP Chit Funds Act. The term reflects the diverse regional vocabulary for rotating savings instruments that have been central to South Indian financial culture for centuries.
W
Witness
People & Roles
A person who attests the execution of the chit agreement, confirming that the foreman and subscriber have signed the document in their presence. Under the Chit Funds Act 1982, chit agreements must be witnessed to be legally valid. Witnesses must be adults of sound mind and cannot be parties to the chit. In digital chit funds enabled by the 2019 Amendment Act, witnesses may be replaced by electronic authentication methods such as Aadhaar e-sign or OTP-based verification.
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Chit Fund Glossary \xe2\x80\x94 Official Definitions
This chit fund glossary draws on definitions from the Chit Funds Act 1982 and established industry practice.
This chit fund glossary covers all 49 terms used in Indian chit fund schemes. The chit fund glossary draws definitions directly from the Chit Funds Act 1982 and the Chit Funds (Amendment) Act 2019. Bookmark this chit fund glossary for quick reference when reviewing any chit agreement or scheme document. Each definition in this chit fund glossary includes the legal source and a practical explanation for subscribers.
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