Sinking fund in a housing society: what it is, how it is calculated, who pays

What the sinking fund is

Every building wears out. Thirty years on, the structure, the plumbing and the terrace need work that costs far more than a month's maintenance. The sinking fund is the society's savings for that day, collected a little at a time from every flat, so that when the work is due the money is already there.

It is separate from the repairs and maintenance fund, which pays for routine repairs, and from monthly service charges, which pay for running the building. The maintenance charges guide explains how the heads fit together.

How the sinking fund is calculated

In Maharashtra, the model bye-laws for co-operative housing societies set the contribution at a minimum of 0.25% of the construction cost of each flat a year. The construction cost is the cost of building the flat, not its market price, and the general body can approve a higher rate.

Construction cost of the flat

₹20,00,000

Sinking fund at 0.25% a year

₹5,000

Repair fund at 0.75% a year (separate head)

₹15,000

Sinking fund on the monthly bill

₹417

Societies elsewhere, and apartment owners' associations, fix the rate in their bye-laws or by a general body resolution, often as a fixed amount per flat or a rate per sq ft. Whatever the basis, show it as its own line on the bill. See the Maharashtra maintenance rules for how the other heads are shared.

Who pays the sinking fund

The owner, as the member of the society. When a flat is rented, the rent agreement may say who bears which part of the maintenance, but the society's claim stays with the owner. Since the fund protects the building's value, many owners keep it as their own cost even when the tenant pays the rest.

It is not refunded when a flat is sold. The fund belongs to the society, and the buyer gets the benefit of what the building has saved.

When the sinking fund can be used

• major structural repairs, such as the frame, slabs or foundations,
• reconstruction or redevelopment of the building, and
• other major work the bye-laws allow,

always with the approval of the general body. Painting, routine leak repairs and replacing a pump come from the repairs and maintenance fund instead. Using the sinking fund for running expenses is one of the most common audit objections.

Where the money is kept

Keep the sinking fund apart from the running account, usually in fixed deposits with a bank the co-operative law allows, and record each deposit in an investment register with its maturity date. Show the fund balance in the annual accounts and, ideally, in the monthly statement, so members can see it growing.

Sinking fund vs corpus fund

New apartments, especially outside Maharashtra, often have a corpus fund: a one-time deposit the builder collects from each buyer at possession and hands over to the association. It serves a similar purpose to a sinking fund, but it is collected once, while a sinking fund grows every month. Many associations keep both: the corpus as the starting reserve, and a monthly contribution to keep it growing.