A chit fund is a type of savings and credit scheme. It involves a group of people pooling their money together and taking turns receiving a lump sum payout which is decided by random selection of name chits. Chit funds are typically managed by a chit fund company, which collects the money and facilitates the payouts.

Example:
Suppose 10 people start the fund for 10 months and pay 1000 every month individually. The total money pooled will be 1,00,000. Each month, one member of the chit fund is selected to receive the lump sum payout of Rs. 10,000. The member who gets the fund is not required to make further contributions.