What is Sinking Fund?
Sinking fund is a fund which created by a Co-Operative Housing Society and keep aside in fixed deposits for future reconstruction of its building or carrying out such structural addition or alteration to the building or heavy repairs work.
Necessity of Sinking Fund?
The necessity of creating such a fund is to provide a sum of money in future, for heavy repairs or redevelopment, because a co-operative housing society not working for generate income it’s working to provide services to members and same amount collected from members to pay the venders & utilities bill.
Why Sinking Fund Important?
- It helps the society meet its long-term financial obligations.
- It prevents the society members from being burdened by suddenly a large amount.
- It ensures that the society can address heavy repair needs without putting a financial burden on residents.
How to calculate Sinking Fund?
First you need to determine the construction cost of your building, let us assume @ Rs 2,000/ - per Sq Ft then formula would be for Sinking Fund:
(2000 x .25% x Flat Area ) / 12 = Monthly Sinking Fund per member
How does it work?
- Society members contribute to the small fund on a regular basis in their monthly maintenance bill.
- The purpose of collection of Sinking Fund is for Long Term purpose, and the fund is invested by the Managing Committee quarterly / Yearly in Fixed Deposit.
- It is experienced that most of the societies do not collect sinking fund as per Bye -Law, therefore leading to a deficit of fund when major repairs arise.
- As per Bye Law 15 & 154B-17 of the MCS act 1960, investment have to made Interest accrued from fixed deposit of Sinking Fund also need to be reinvested so as to increase the corpus substantially.
Ex , Let assume to understand, if you have 50 flats and collecting Rs. 150 as sinking fund :
Total Monthly Collection : 7,500
Total Yearly Collection : 90,000
If done Fixed deposits of 5 years
FD for 5 years : 90,000/-
Int ( 6.5 % yearly ) = 34,238/-
On Maturity = 1,24,238/-
How to utilized Sinking Fund?
As per Bye-Law No 14: On the resolution passed at the meeting of the General Body of the Society, the Sinking Fund may be used by the Society for reconstruction of its building/buildings or for carrying out such structural additions or alteration to the building/buildings, as in the opinion of the Society's Architect, would be necessary to.
