What is Chit Fund | How Chit Fund Works| How Does Chit Fund Work

Chit Fund

The Chit fund is described with various names such as Chit, Chitty, or Kuri. It’s a rotating saving scheme established in India. The scheme is considered a legal, financial system and has existed for many years in the country. Chit fund users can save and borrow funds from the scheme. Chit Fund scheme beneficiaries can save any amount based on ability. The scheme offers excellent returns to the users. One can also borrow emergency funds which are process fast and with low returns.

What Is A Chit Fund & How Do Chit Funds Work?

What is Chit Fund

What is Chit Fund

Types of Chit funds: The scheme offers five types of chit funds that users can invest in based on their preferences and returns.

The Registered Chit Funds

The registered chit fund is legally registered with the registrar of firms’ societies and chits. The RBI has authority over the registered chit funds through the Chit fund Act 1982 in India.

Unregistered Chit funds

The fund is an investment channel or saving scheme which are not registered and operates among friends, work colleagues, and families. The unregistered chit is quite risky since the RBI has no account for the funds.

Online Digital Chit Funds

Chit Fund has transitioned from a manual process to online digitalization. The Chit fund members can send and receive funds through online platforms. The Chit fund members need to create an online account to ease the transaction process.

Organized Chit Funds

The organized Chit Funds is highly embraced in Northern India. The registered members meet either monthly or weekly for the contribution and progress of the scheme. The members write their names on a small piece of paper and put them in the collection box. The head of the group picks any papers at random, and whoever’s name appears. They receive the whole fund collection for that day. Next time the member won’t participate in the collection process. However, the member has to appear in the next meeting and provide his share.

Special purpose Chit funds

A special-purpose Chit fund is developed for a particular purpose, and once it ends, the group ends or gets a different purpose. For example, Indian women can form a Chit fund scheme to prepare for Diwali; they will plan for the festivals, such as sweets. They must contribute and prepare the sweets before the main event. This type of Chit fund allows members to come together, reduce cost and combine efforts.

Uses of Chit Fund Saving Schemes

  • Chit funds help members in consumption (family uses or basic needs).
  • Members can borrow money for an emergency.
  • One can also invest and start a business.
  • Members can also save money for future requirements.

About Chit Funds

Chit fund saving schemes are groups of people from different backgrounds coming together for saving purposes. The groups agree on the duration and installments to contribute either weekly or monthly. Some do weekly draws where one member wins the amount or an auction. For auction allotment system allows users to bid the lowest and whoever wins gets the price (reverse auction). The process involves biding the lowest and getting the prices.

Features of Chit Fund

  • A Chitfund is a saving and credit scheme.
  • The work under the microfinance institutions category.
  • The scheme offers a set duration and installments to contribute.
  • Members can borrow funds at low-interest rates compared to other money renders.
  • The funds help people with emergency funds.
  • The contributions made are pooled into a lump sum.

Benefits of Chit Funds

  • It’s a saving and credit scheme that benefits any member of society.
  • Members can access fast money.
  • Not much paperwork is required.
  • The members don’t have to offer collateral for borrowed money.
  • Members don’t have to reveal the purpose of borrowing money as long they refund as agreed.
  • Users can request emergency funds.
  • The scheme offers low-interest loans.
  • The members can borrow funds for marriage, shopping, travel, religious purpose, education, festivals, and more.

What to Consider Before Investing in Chit Funds

  • The user should check for registered Chit fund saving schemes.
  • Recheck on financial funders to ensure you are all safe.
  • Members should check the Chitfund registration number and certificate. You can also check the state and Company the Chit funds is registered under.
  • Select a chitt fund where the foreman takes the lowest commission.
  • Check for any complaints about the Chitty fund or court cases.
  • Don’t join the scheme if you are not prepared financially.


  1. Who is eligible for the Chit fund in India?

    The chit fund saving scheme is open to all residents in India. One can select from the many legal chits or the mentioned types above.

  2. Can a member use the Chit fund saving scheme to pay for jewelry?

    Yes, Lalithaa allows buyers to pay in small installments and receive the jewelry once the payment duration is done. The process works as a Chit fund scheme.