Project & Payment
What is a Sinking Fund?
Money set aside now for the lift that fails in 2040. Many Indian societies never collect it — and then send everyone a bill for ₹2 lakh.
The short answer
A sinking fund is money set aside, a little at a time, for the big repairs that come decades later — replacing the lifts, repainting the tower, overhauling the plumbing, structural repairs.
Under the Model Bye-laws followed by many co-operative societies, it is typically collected at around 0.25% of the construction cost per year. Many Indian societies don't collect one at all — and then hit every resident with a sudden levy when the lift finally dies.
What a sinking fund is for
Not the day-to-day. That's what maintenance charges are for.
The sinking fund is for the things that happen once every fifteen or twenty-five years — and cost a fortune when they do:
- Replacing the lifts. Lifts have a life. Around 20–25 years, and then they need replacing, not repairing. A single lift can cost ₹15–30 lakh.
- External painting. Every 5–7 years. On a tower, several lakh.
- Waterproofing and roof repairs.
- Structural repairs — concrete, steel, façade.
- Replacing the plumbing risers, the pumps, the generator.
- Rewiring the common areas.
How much
Under the Model Bye-laws that many Indian co-operative housing societies adopt, the sinking fund is typically collected at 0.25% of the construction cost of the flat, per year — excluding land cost.
What that means in practice
1,200 sq ft flat, construction cost ₹2,000 per sq ft.
- Construction cost of the flat
- ₹24,00,000
- Sinking fund @ 0.25% / year
- ₹6,000 / year
- Monthly
- ₹500
₹500 a month. Over twenty years, with interest, that's several lakh per flat — which is roughly what the lift replacement will cost.
That is the entire idea. Small, painless, now. Instead of enormous, painful, later.
Why it matters more than it sounds
A twenty-year-old building needs its lifts replaced. That's ₹30 lakh across two lifts.
With a sinking fund: the money is there. The association calls the contractor. Residents notice nothing except a working lift.
Without one: the association levies ₹1.5–2 lakh per flat, payable now. Half the residents can't pay. Meetings become arguments. The lift stays broken for a year. And the value of every flat in the building quietly falls, because buyers can see the building is failing.
What happens without one
This is the ordinary Indian pattern, and it plays out the same way every time:
- The building is new. Nothing needs replacing. Nobody sees the point of a sinking fund.
- Someone proposes one. It's voted down — why pay for something that isn't broken?
- Fifteen years pass. Things start to fail.
- The association discovers there is no reserve.
- A large one-time levy is proposed. It is deeply unpopular.
- Many residents can't or won't pay. Retired residents on fixed incomes genuinely cannot.
- The work is deferred. The building deteriorates. Resale values fall.
- Eventually it becomes an emergency, and costs more than it would have.
A building with a healthy sinking fund is worth more than an identical building without one — and almost no buyer thinks to ask.
“Does the society have a sinking fund, and how much is in it?“
A well-run association will know the number instantly and be proud of it. A badly-run one will be vague.
The answer tells you what the next twenty years in that building will feel like — and whether you are about to inherit a ₹2 lakh levy.
Sinking fund vs corpus vs maintenance
| Maintenance charges | Corpus fund | Sinking fund | |
|---|---|---|---|
| What it's for | Running the building day to day — security, lifts, cleaning, water, common lighting | A one-time reserve handed to the residents' association, usually invested; the interest supports running costs | Major repairs and replacement far in the future — the lift in 2040, the roof, repainting the tower |
| How often paid | Monthly (sometimes quarterly) | Once, at possession | Monthly or annually, alongside maintenance |
| Typical size | ₹2 – ₹6 per sq ft per month | ₹50 – ₹200 per sq ft, one time | Often ~0.25% of construction cost per year |
| Refundable? | No — it's a running cost | It belongs to the association, not to you individually. You don't get it back on sale; it transfers with the flat. | No — it belongs to the association |
| Who holds it | The builder until handover, then the residents' association | Must be transferred to the association at handover | The residents' association |
| The thing to check | GST applies at 18% if it exceeds ₹7,500 per member per month (and society turnover crosses the threshold) | Has the builder actually handed it over? This is a very common dispute. | Is one being collected at all? Many societies don't, and pay for it later with a shock levy. |
The corpus fund is the one to watch. Builders collect it from every buyer and are obliged to hand it to the residents' association — with the accrued interest. Many delay for years. Ask, at possession, whether it has been transferred.
Frequently asked questions
What is a sinking fund in a housing society?
A reserve built up over time to pay for major repairs and replacements decades ahead — lifts, external painting, structural repairs, plumbing overhauls. It's separate from monthly maintenance, which covers day-to-day running.
How much sinking fund should a society collect?
Under the Model Bye-laws followed by many co-operative societies, typically 0.25% of the construction cost of the flat per year, excluding land. On a 1,200 sq ft flat with a construction cost of Rs 2,000 per sq ft, that's about Rs 500 a month.
What happens if a society has no sinking fund?
When the lifts need replacing — Rs 30 lakh across two — the association levies Rs 1.5-2 lakh per flat, payable now. Many residents can't pay, especially retirees on fixed incomes. The work gets deferred, the building deteriorates, and every flat in it loses value. It is a very common Indian pattern.
Is a sinking fund the same as a corpus fund?
No. The corpus is a one-time deposit collected at possession and meant to be invested, with its interest supporting running costs. The sinking fund is collected regularly and is earmarked specifically for major future repairs. A building can and should have both.
Should I check the sinking fund before buying a resale flat?
Yes, and almost nobody does. Ask the society: 'Do you have a sinking fund, and how much is in it?' A well-run association knows the number instantly. A vague answer means you may be about to inherit a large levy.