What is sinking fund?
Also called: sinking fund contribution, major repair fund, capital replacement fund, building reserve fund
Housing societies build up a sinking fund over the years to pay for big, predictable expenses such as structural repairs, lift replacement, waterproofing and, eventually, redevelopment. Members contribute regularly, and it is kept apart from day-to-day maintenance.
Every building ages on a schedule. Lifts need replacing after 20 to 25 years, terraces need fresh waterproofing, and in coastal Mumbai the concrete frame itself starts needing repairs within a few decades. A sinking fund exists so that when these bills arrive, the society isn't forced into a one-time levy of ₹1 lakh or more per flat.
Maharashtra has the most formal rules. Under the model bye-laws for cooperative housing societies, members contribute to the sinking fund at a minimum of 0.25% a year of the construction cost of each flat, as certified by the society's architect, excluding land cost. A flat whose construction cost is taken at ₹20 lakh therefore pays at least ₹5,000 a year. This sits beside a separate repairs and maintenance fund, and the sinking fund is supposed to be invested and spent only with the general body's approval.
Apartment associations in Bengaluru, Hyderabad and the NCR have no uniform rule. Builders sometimes collect a one-time 'sinking fund' or corpus of ₹50 to ₹100 per sq ft at possession, and associations later add a monthly component to the maintenance bill. The difficulty, as with IFMS, is the handover: until the association is registered and the builder transfers the money, residents have little say over it.
For a resale buyer, the point to grasp is that the sinking fund belongs to the society, not the seller. It isn't refunded when a member sells; it stays with the building. That's a good reason to ask for the society's audited accounts before you buy. A 30-year-old building with a thin sinking fund and a leaking terrace is a special levy waiting to happen.
A Pune society of 80 flats, each with a construction cost of ₹25 lakh, collects 0.25% a year, or ₹6,250 per flat, adding ₹5 lakh a year to the sinking fund. Fifteen years on, with interest, that can pay for new lifts without a special levy.
Paying a resale seller extra for 'his share' of the sinking fund. The money belongs to the society and stays with the building whoever owns the flat.
Questions people ask about sinking fund
Is sinking fund refundable when I sell my flat?
No. It is the society's money, built up for the building's future repairs, and it stays with the society after a sale.
How is sinking fund calculated in Maharashtra?
Under the model bye-laws, at least 0.25% a year of the flat's construction cost as certified by the society's architect, leaving out land cost.