While residing in apartment there are various fees that we must pay. Sinking fund is one such part of our monthly maintenance fees, that we pay. For housing societies big or small it is a crucial investment. Read to know more about sinking fund.
What is Sinking Fund?
Sinking fund can be defined as the fund which is kept in a separate account to be used for major expanses. These expanses include major repairs, new equipment’s and other maintenance activities along with structural changes. As per the by-law No. 67(b)(i) from the set revised in 1976, every society needs to collect contribution towards the sinking fund. This amount is a fixed amount which is a part of the monthly maintenance charges. As per the by-law the amount is 1/2 percent/annum of the cost of the construction of a flat. Same is equally divided and collected every month.
In housing society there are numerous funds like Repair and Maintenance Fund, Reserve Fund, Education and Training Fund and Sinking fund. The sinking fund is majorly used in case of any structural repairs like major repair work or additions of facilities. Use of sinking fund is done only post approval of general body meeting and inputs from other residents.
Above picture is a residential apartment in the Financial Capital, Mumbai.
Now, the building shown in above image is quite old and in need of major repairs and rework. A fresh paint is also needed, and seepage repair work is required. Here, the repair work involved would require huge amount of funds. This amount would be over and above the normal expanses that a society incurs on regular basis. This is where the sinking fund comes to use, a small amount gathered monthly which has grown over a period of years. The interest earned on these amounts is also considerable.
How to calculate funds?
Sinking fund is created from the time of society formation, Though the need for reconstruction is not immediate and it might be years before any structural changes are required. But when the time arises the costs would be huge. Hence it recommended to have a sinking fund from the start so that it has enough time to grow over the years.
As per the state by-laws the sinking fund contribution is to be calculated as per a fixed percentage of the cost involved for reconstruction of a flat. The same is to be calculated per sq.ft. and multiplied by the size of apartment. These calculations should be done in consultation with an Architect as other factors like growth of property prizes and common areas need to be validated.
Sinking fund calculation and collection procedures might vary from society to society and region. However, the need of having a sinking fund can’t be ignored. This must be done with proper discussions and help from the experts.
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