A chit fund transaction occurs when a certain number of persons enter into an agreement with the Chit Fund firm to individually subscribe a specific amount of money over a predetermined length of time in periodic payments. Each subscriber will then be awarded the prize money in turn, as determined by lot, auction, tender, or any other manner that is agreed upon.

The money invested in registered chit funds is extremely safe, and these funds are subject to the tight requirements of the Chit Funds Act of 1982. For the duration of the chit, Chit Fund enterprises must have a fixed deposit with a bank in the name of the Registrar of Chits equivalent to 100% of the total chit amount from all chits conducted.

The Chit Fund Company does not invest the money it collects since it pays out all of the money it gets each month to its valued clients; the only money it keeps is the commission that these subscribers are entitled to as part of their remuneration.

By participating in the auction, you can withdraw the prize money at any time beginning in the second month. Once the requisite security and/or sureties have been supplied, the prize money will be distributed within 30 days.

To protect the interests of non-priority customers, security and sureties are required. This will make it easier for other subscribers to pay on time when they accept the chit by ensuring that the valued subscribers continue to give subscriptions on a consistent basis.

Since chit fund businesses don’t give its subscribers any dividends or interest, they don’t deduct income tax at the source.