Tuesday, October 5, 2010

Sinking fund

Part 2
v     Investment
(1)   Investment of sinking fund made obligatory
The amount in the sinking fund is required to be utilized when the reconstruction of the building is due. This is a very long period. During this period the contribution received from members by a society should stand invested on a long term basis so that such an investment will fetch substantial returns to the society.    This is as per Bye-law No. and Section 70 of Maharashtra Co-operative Society Act, 1960.

(2)   The need for investing Interest on Sinking Fund Investment

It is brought to the notice of Co-operative Housing Societies that if they go on investing only the contributions from members towards sinking fund at the rate of 0.25 per cent per annum of the cost of construction of the flats and utilize the interest earned on such investments in their day to day maintenance, the total amount of the sinking fund so created will not be sufficient to meet the cost of reconstruction of the building when due. It may be clarified here that while fixing the rate of contribution to the Sinking fund at 0.25 percent  per annum of the cost of construction of a flat it was assumed that a Co-operative housing society would be in a position to build up its sinking fund equal to the cost of reconstruction of the building.  This can be achieved only if the sinking fund is invested on long term basis, along with the interest earned on such investment.

(3)   Modes of investment of sinking fund

A Co-operative Housing Society can invest its fund in the State Co-operative Bank i.e. the Maharashtra State Co-operative Bank or The Mumbai District Central Co-operative Bank Ltd. or the securities specified under Section 20 of the Indian Trust Act.  Although the Registrar cam permit Co-operative housing societies to invest their funds in the Nationalised banks or other Commercial banks, or the Urban Commercial Banks, this facility is given only for facilitating day to day banking transactions.  A long term investment has, therefore, to be made by Co-operative housing societies only with either of the two banks named above.  All Co-operative housing societies should therefore note that they have to invest their sinking fund collection in one of the above mentioned two banks.

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