What is an auction in chit? 

Auction Meaning

The sale of a property, good, or any product (physical or paper) which is in demand,  to an individual or to an organisation with the highest price than others quote is called an Auction.

Before going to know about chit fund auction, you need to understand the below basic terminology.

Chit Fund?

A chit fund is a rotating saving scheme that has been a section of India’s economic system for more than 100 years. It's additionally referred to as chit. Chit fund is a superb money instrument for both – saving & borrowing schemes. As a savings instrument, it provides a decent return on investment, and as a borrowing scheme, it is often a reliable source of funds in emergencies.

Chit Group

Chit Fund schemes didn't serve directly any one individual, it rotates money with some particular count of persons who get combined and forms a group to run the scheme with a particular agreement with a set of rules as per the act.    

Chit Subscribers

The individuals who are involved in a chit group with an agreement are called chit subscribers. As per Chit Fund Act 1982, every chit group is formed with One Foreman and Remaining with that particular group subscribers. For example, if a chit group is decided to have 20 subscribers then 1 foreman and 19 subscribers are compulsory.  As per Chit Fund Act 1982, subscribers need to be Indian age above 18 years. 

Chit Installments

The Subscribers in a Chit group will pay some fixed amount in equal intervals of time in the form of instalments. Instalments may be weekly, 15 days once or Monthly.


The person who regulates and runs the chit group is called Foreman. Every company should have a minimum of one foreman. Foreman decides the chit amount, collects the subscribers and forms a group and he also takes responsibility for chit registration, issuing chit pass books to all subscribers, conducting auctions etc,... He also acts as one subscriber in that particular chit group. He gets 5 % of the commission in chit amount on every instalment.


At the time of every instalment, every subscriber will pay their instalment amount (chit amount). Now, this amount is to be allocated to a single subscriber who is needy with the acceptance of the foreman and remaining subscribers. If the needy subscribers are more than 1 then they undergo the process called bidding. Here the required subscribers participate in bidding to purchase chit amount.

Chit Auction

The undergoing process of bidding is called an auction. It is conducted by Foreman according to the rules of the chit fund act 1982. 

Chit Winner

The Bidder who purchases the Chit Amount at a high amount (referred to as a dividend) then others will be declared as chit winner. Each and every instalment will have one chit-winner. Chit winner will lose the chance of participating in the auction for remaining instalments or remaining chit amounts of that particular chit group. the winner needs to provide some security to have his win chit amount to the foreman in the form of government employment sureties, property surety, cheques etc,...

Chit Dividend

The Purchased value of the chit amount by the chit winner is termed a chit dividend. This dividend will be distributed to all chit group subscribers. Dividends are also termed as profit to the subscribers. In this way, we can earn in chits also... 

What is an auction in chit? 

 Auction means as directly put, the chit fund begins on such a date and continues for the number of months capable of the number of members. Members contribute their monthly instalments to the pot, and a reverse auction is conducted every month allowing members to bid for the prize. 

 Examples of an Auction in Chit fund

  • Members will choose from a large range of chits from Rs. 50,000 to Rs. 50,00,000 designed to suit a variety of necessities. To become a member of the chit fund, people got to fill out an enrollment form, and opt for any of the account schemes available with monthly instalments starting from Rs. 1000 to Rs. 1.00,000.
  • Relying upon the necessity, one might select future Chits (50-month duration) for saving purposes and short Term Chits (25 months duration) for the unpredictable financial crisis.
  • Members are entitled to bid at the auction even though only 1 instalment has been paid i.e., the primary instalment. However, depending upon the necessity and competition,
  • One will get the bid in any of the instalments. When being declared as a successful bidder in the auction, the bidder needs to submit sureties depending upon future liability either from salaried workers with required basic pay or business individuals having non-exempt income or maybe property mortgage.
  • Thereafter, the prize is discharged when finishing several formalities. The chit cash must be paid back in the remaining simple instalments. The made bidder earns his or her profit by repaying the monthly instalments excluding the dividends

Successful bidder 

A subscriber who has the Bid in Auction held for the chit group by bidding the best bid amount. (Either for optimum or in open Auction). 

How are Auctions conducted? 

  • Auctions are conducted in the branches wherever the foremen declare the successful bidder. All non-prized subscribers who have paid their Installments up to date are eligible to participate in the auctions. Just in case the payment is formed by check the cheque should be complete in the future before the auction date. For every group, the auction time is 5 minutes on a specified date and time. it's up to the members to be present within the auction hall 10 minutes before auction time as verification needs to be done by the branch for signatures of members and identification of proxies and their Bid Authorization letters. 
  •  Initial the first few months, there'll be more number of participants willing to bid at the maximum discount. This maximum discount is planned for every group and may not go beyond 40 you look after chit price. 
  • The maximum bid limit varies between 30% to 40% looking on the period of the chit. Out of that 5% of the chit, price is the company's commission and therefore the balance share is distributed as dividends equally among the members within the group. The member pays the following instalment minus the dividend and also the dividend amount is credited to his account. 
  • When there are more members for maximum discount their tokens are placed in a box and one token is picked by way of a lottery. The member who holds the price tag that is marked on the picked-up token is declared as a prosperous bidder who needs to submit the specified sureties looking at the long-run Liability. 
  • When there are no bid offers within the auction members will participate in open bidding throughout the auction time. Once there are no most discount bidding members are purported to participate in open bidding throughout auction time, which starts with a minimum of 5% of chit price or any bid provided that has been given by a member before auction time. Members are purported to bid in multiples of Rs.100/- from the minimum bid offer amount and therefore the one that quotes the best bid quantity on the completion of the 5th minute shall be declared the made bidder by the foremen. 
  • Suppose, there are not any offers on top of the bid supply the member who has given the highest amount as a bid-offer is declared a successful bidder. A bid offer is to be to the workplace twenty-four hours before the day of auction during which one will mention the utmost bid quantity that's acceptable to them. If a member is unable to participate in the auction the member will authorize another person whose signatures need to be authenticated by the member. Generally, the member authorizes by Development Officer and Agents as proxies to participate in the auctions.

How we can participate in the Auction?

An individual can participate in the auction for the prize from the second month onwards. The first month’s Gross chit amount goes to the company. To be eligible to form a bid the subscriber should have paid all the instalments and not have any unpaid instalments. 

What are the options to participate in the Auction? 

Options to participate in the Auction 
A subscriber will participate in the auction in the following ways. 
1. Direct Participation 
The member will either participate online or in-person and attend the auction within the workplace on the date and time per the account Fund agreement. 
2. Bid offer Letter 
The subscriber has to fill altogether the details in the letter before signing and sending it to the Chit’s workplace. 
3. Bid Authorisation Letter 
The customer will send a proxy to participate in the auction on their behalf. The proxy must carry the authorization letter & valid ID proof to participate in the auction. 

List of Some Best chit fund companies in India which conduct auction and their foreman commissions

ksfe chittyksfe chitty conducts the auction and allows maximum bidding of 30% of chit amount as per chit fund act 1982, in all its monthly chits and it includes 5% of foreman commission. Click for more ksfe chitty

Shriram chitsShriram chits conduct the auction and allow maximum bidding of 35% of chit amount as per chit fund act 1982, in all its monthly chits and it includes 5% of foreman commission. Click for more Shriram chits

Kapil chitsKapil chits conduct auctions and allow maximum bidding of 35% of chit amount as per chit fund act 1982, in all its monthly chits and it includes 5% of foreman commission. Click for more Kapil chits

Margadarsi chit fund: Margadarsi chit fund conducts an auction and allows maximum bidding of 35% of chit amount as per chit fund act 1982, in all its monthly chits and it includes 5% of foreman commission. Click for more Margadarsi chit fund

Gokulam chits: Gokulam chits conduct auctions and allow maximum bidding of 25% of chit amount as per chit fund act 1982, in all its monthly chits and it includes 5% of foreman commission. Click for more gokulam chits

Balussery chitsbalussery chits conduct the auction and allow maximum bidding of 25% of chit amount as per chit fund act 1982, in all its monthly chits and weekly chits and it includes 5% of foreman commission. Click for more balussery chits


Attract by creating fast profits, persons with inadequate suggestions start chit funds by furnishing the desired security and fulfilling different prescribed formalities within the Act. Since their objectives are neither honest nor legal, such firms roll down their shutters before long, cheating several gullible investors.

Frequently Asked Questions
What is an Open Auction?

Where there are not any most bid offers, the Auction can begin with 5% of the chit worth, and therefore the subscribers present in the auction can raise the bid in multiples of Rs.10/- according to their want. 

What is the purpose of bidding? 

In each chit group, some members require cash. Therefore, all the members who require cash are participating in the auction for bidding. Bidding aims to declare the undefeated bidder who provides the best bid amount (Not surpassing the maximum limit) among the desired auction time i.e. 5 minutes. 

When can one participate in the auction? 

A member will participate in an auction right from the primary auction itself, as long as he or she has created the payments up to date. If paid by cheque, it should be completed before the auction date. A defaulter whose payment isn't up-to-date before the auction isn't eligible to participate in the auction.