When an aging building requires a ₹20 lakh elevator replacement or exterior repainting, societies without adequate reserves are forced to levy sudden, unpopular special contributions. That is why state bye-laws mandate two distinct long-term funds: the Sinking Fund and the Repair Fund.
What Is a Sinking Fund and How Is It Calculated?
The Sinking Fund is created to accumulate capital over decades for the eventual reconstruction of the building or major structural overhauls at the end of its architectural lifespan.
Under Model Bye-Law 67(a), the sinking fund contribution is calculated at a minimum rate of 0.25% per annum of the construction cost of each flat (excluding the land cost). General bodies can vote to increase this rate, but they cannot legally reduce it below the statutory floor.
Repair and Maintenance Fund: Short vs Long-Term
While the sinking fund is for structural replacement, the Repair & Maintenance Fund handles ongoing cyclic repairs: biennial exterior weather-coating, terrace waterproofing, corridor tiling, and water tank relining.
The repair fund is calculated at a minimum of 0.75% per annum of the flat construction cost. Sinking fund money cannot be casually diverted to pay day-to-day security guard agency salaries or electricity bills.
Investment and Utilization Guidelines
Reserve funds must be kept safely invested in designated Nationalized Banks or State Cooperative Banks as Term Deposits (Fixed Deposits).
Tapping the sinking fund requires a formal resolution passed by a 3/4th majority at a Special General Meeting and, in many jurisdictions, prior intimation to the Cooperative Registrar.
Common questions
Is the sinking fund refundable when an owner sells their flat?
No. The sinking fund stays with the flat and the society. The buyer automatically inherits the accumulated reserve balance associated with that unit.
Related DGate resources for society management
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