A chit fund comprises a group of members, called subscribers. An organizer, a company or a trusted relative or neighbor, brings the group together and administers the activities of the group. The organizer is compensated each month for their efforts. The fund starts at an announced date and continues for the number of months equal to the number of subscribers. Each month, the subscribers put in their monthly installments into the pot. Then, an open auction is conducted to determine the lowest sum a subscriber is willing to take that month. For example, if the monthly installment is ₹1000 and there are 50 members, the pot in the first month will contain ₹50,000. If the auction determines a winner who is willing to accept ₹45,000 for that month, the surplus ₹5,000 is distributed to the other 49 members, after subtracting fees paid to the organizer. The subscriber who won the auction was able to access ₹45,000 in the first month and the others benefited in their share of the ₹5,000 surplus. The process repeats, distributing the auction amount to one member each month. All of the other subscribers, including the ones who took their share in a previous month, continue paying the monthly installments. The system acts as a both a borrowing scheme, because subscribers are able to access large sums of money before they've paid the full amount. It also acts as a savings system, because each subscriber contributes every month and may retrieve a large sum in the future while receiving their share of the surpluses.

A person who under the chit agreement is responsible for the conduct of the chit.

Chit is a financial institution that gives advantages of both investment and borrowing simultaneously. Further it gives a higher return when compared with bank deposits. It helps us to meet out our unforeseen expenses. It is also used to meet a planned expenditure and by planning we earn good dividends. Chit fund gives you higher returns than a bank where you have a fixed deposit account.

A person who receives a publication regularly by paying in advance.

Chit funds in India are governed by various State or Central laws. Organised chit fund schemes are required to register with the Registrar or Firms, Societies andChits. The law governing and regulating the business of Chit Fund in India is 'The Indian Chit Fund Act, 1982'