The concept of Chits date back to several centuries in India as it is a country with a history of oldest civilisations.

Humans living in communities developed the concept of mutual help and co-operation first. This co-operation continued further in the communities in grouping themselves to collectively face their own safety, security and other eventualities. As days grew by and with the advent of trade, money and the urge to save money and commodities for future needs, people formed small groups to evolve a common and collective approach to their problems.


These collective approaches gave birth to the search for different ways of saving money and its usage for their necessities. During this process of evolution, individuals joined together to form groups and contributed a specific amount of savings to a pool and provide the consolidated sum to the most needy member. Later, the concept of rotational withdrawal of the pooled amount by every member and further selecting the deserving person for payment of the pooled amountwas evolved. Finally the present day format of Chits took shape.


From time immemorial, human beings have imbibed the habit of saving in them. Be it, food, clothes, money, gold human beings from generations have continued to save for their future. Saving of money gives a sense of security to an individual and provides confidence and courage to face any eventuality. Hence, human beings have been continuously inventing, practicing, various ways and means of savings.


With the growth of civilization, various ways of savings came into practice and institutional savings, individual savings and collective savings were developed by humans. The easiest way of collective savings involving small amounts in periodic intervals and giving the consolidated amount to the most needy was called as Chit Fund.


A Chit is a financial arrangement between individuals who form a group with an intention to save a definite sum of money at periodic intervals and give the amount so collected to the most needy individual every month. Usually, such Chits will have a specified number of individuals who are willing to save a specified amount every month for a period equal to the number of individuals in that group. In other words, it is a financial arrangement under which the periodical and regular savings of a group of subscribers are made available to each subscriber, by saving a specified amount every month (termed as installment) for a specified period. The funds so pooled every month are offered to the subscribers at monthly auctions and the "subscriber who bids for the highest discount" is declared the "Prized Subscriber" and given the Chit Amount after obtaining proper security for repayment of the same. The Prized Subscriber also should continue to pay the periodic subscriptions (monthly installments) till the termination of the Chit. The total amount foregone as Discount by all the members of the group, after deduction of the Foreman's (company) Commission, is distributed among the Members as Dividend.


CHITS provide a good source of savings and finance for all classes of people like; small investors, businessmen, small scale industrialists, petty traders, individuals etc. CHITS are also a good means of savings for any contingency requiring a substantial amount. It serves the requirements of all types of persons, whether they desire to save or to borrow to meet extraordinary expenses and for special occasions like Marriages, Construction of Houses etc. The subscribers of a chit group can save in small amounts regularly to receive a lump sum amount during the period of Chit. Similarly one can borrow to meet their immediate commitment and repay the same in easy monthly installments. Some subscribers join chit funds to borrow and some others to save.


One should exercise absolute care in choosing a Group suitable to their financial capability and also requirement. The selection of a particular Group, largely depends on the subscriber's capacity to provide surplus funds month after month from his normal income for this purpose. This aspect is very important for the subscriber as well as the company's point of view to avoid any embarrassment at the time of releasing the prize money (Chit Value) or in realizing chit installments month after month.


Mutual obligations between the Subscriber and the Company (Chit Foreman) last for the duration of the Chit Group and until the liabilities of Subscribers to the Company or vice versa, are completely discharged.


The Rules and Regulations governing a Chit transaction are reduced to writing in the form of an Agreement between the Subscriber and the Foreman (company). It is prescribed under Law that such an agreement shall necessarily contain the Name and Address of the Subscriber, the probable Date of Commencement of the Chit and its Duration, Date, Time and Place of Auction, Number of members in the Chit Group, Number of Installments, the Installment Amount Payable every month, Interest/Penalty, if any payable, for Delayed Payment, Manner of Deciding the Prize Winner in each month, the Minimum/Maximum Discount to be Foregone in each month, Mode and Proportion of Dividend and Foreman's (Company) Commission, the installment at which the Foreman (Company) is to get the Chit Amount, Name of the Bank, Security / Documents to be furnished by Prized Subscriber to ensure repayment etc. Such an Agreement shall be prepared in Duplicate, signed by both the parties and duly witnessed. In practice, all the subscribers in the group are made to sign a Declaration Form stating that they have read and understood the terms and conditions of the Chit Agreement and such Declarations from all the subscribers in the group are filed with the Registrar.


In order to join a group or to enroll as a Subscriber in a Chit Group, one has to submit an application form to the Foreman / Company, which should contain the Name, Residential and Office Address, Approximate Gross Monthly Salary / Income, Name of the Nominee and the relationship of the Nominee to the Subscriber.