The questions first-time subscribers ask us most.

It depends on the features of the scheme and the track record of the company you choose. If you invest with a trusted, long-running chit fund company, you can expect full repayment. Companies with a long working history have consistently repaid subscribers on time.

Chit funds are a reliable way to grow disciplined savings. Some companies offer a discount on instalments paid on time, and collection can happen at your doorstep so you never miss a payment.

Joining a chit fund commits you to saving a fixed part of your monthly income, which builds consistency. Borrowing from a chit fund is also usually easier than from a bank, and the effective cost is normally lower than market interest rates, while dividends are often higher than bank recurring deposit interest.

A prized subscriber is one who has already withdrawn, or been paid, the chit amount.

A non-prized subscriber is one who has not yet withdrawn or been paid the chit amount.

Chit funds work similarly to a recurring deposit, built from periodic pooled investments by a group of subscribers. Each subscriber contributes a pre-calculated instalment based on the chit value. See the full worked example.

Dividends earned in a chit are generally not taxable. If a subscriber claims the bid amount as a loss, the dividend must then be shown as revenue income in the assessment. If you do not claim the bid as a loss, the dividend earned is not taxable.

An auction is the process for identifying the non-prized subscriber who wants the chit amount at the highest permissible discount. All non-prized subscribers who are current on instalments may bid, within a fixed window of about five minutes per auction.

Withdrawal is permitted. When a subscriber withdraws, the company arranges the funds on their behalf until a replacement is found. The amount actually paid in, minus the company's commission, is repaid to the withdrawing subscriber at the end of the chit period.

Members usually submit security based on their future liability in the chit. Accepted forms include:

• Personal surety from a salaried person at a government body, public limited company, bank or other reputed employer
• Pledge of deposits with the company
• A bank guarantee from a scheduled bank
• Income tax assessment for the past three years, for self-employed applicants
• Pledge of property title deeds, including third-party property