How it works
How a chit fund calculation actually works
Every chit starts from one number: the chit value, or pot. Divide it by the number of members and you get the base instalment — what each member would pay every cycle if nobody bid.
The bid is a discount, not a fee
In an auction chit, members who need money early bid by offering to take less than the full pot. The lowest amount accepted wins. That gap between the pot and what the winner accepts is the discount, and it is the money that funds everyone else’s dividend.
Commission comes out first
The organiser takes an agreed commission — commonly 5% of the chit value. Some groups fix it as a flat rupee amount instead. What remains of the discount is the dividend pool.
The dividend lowers the next instalment
The pool is shared among the members who have not yet taken the pot. It is not paid out in cash; it is deducted from what they owe. As the chit progresses and members stop needing money urgently, bids fall, dividends shrink, and instalments climb back toward the base.
The part that trips organisers up
The dividend is per member, per cycle — and once one member pays late or partially, their balance and everyone else’s stop matching a single spreadsheet formula. That is the point at which most organisers start keeping a second, private notebook.
Fixed chits work differently
In a fixed or committee chit there is no bidding. The payout order is agreed in advance, and each member pays a set amount — often a base amount before their win and a higher, fixed premium afterwards. The maths is simpler, but the record-keeping over 20 or 40 cycles is not.