How the bidding, discount and dividend actually work.

1. A new chit group commences

   The chit value is ₹5,00,000, known as the chit value, running for a 50-month term.

2. 50 subscribers join the group

   The company gathers 50 subscribers interested in this chit group. The number of subscribers always equals the number of months.

3. The company registers the chit and pays security

   The foreman registers the chit with the registrar of chits and deposits 100% of the chit value as security, withdrawable only after every subscriber has been paid what is due.

4. The monthly subscription is fixed

   Each subscriber's maximum monthly instalment is chit value ÷ number of subscribers: ₹5,00,000 ÷ 50 = ₹10,000.

5. Subscribers bid for the pooled amount

   The maximum discount permitted is usually 30–40%. In this example, a subscriber bids 35% of the chit value: 35% of ₹5,00,000 = ₹1,75,000 chit discount.

6. The foreman's commission is deducted

   A 5% commission on the chit value is deducted from the discount: ₹1,75,000 − ₹25,000 = ₹1,50,000 remains for distribution.

7. The remainder is split as dividend

   ₹1,50,000 divided among 50 subscribers gives each a dividend of ₹3,000.

8. Next month's instalment drops

   Every subscriber now pays ₹10,000 − ₹3,000 = ₹7,000 instead of the full instalment, because of the dividend earned.

9. The cycle continues to term

   Bidding continues every month until the chit period ends. The minimum discount is the 5% foreman's commission; the rest varies with how competitive that month's auction is.

In this way, subscribers who bid early can borrow more than they have paid in so far, and subscribers who wait can save on their later instalments through dividends. See the published schemes for real chit values and terms.