Sinking funds are underfunded by design
The 0.25 per cent minimum is a floor, not a calculation of what a building will need. Run the arithmetic on your own society before assuming the reserve will be there.
Most Indian housing societies collect a sinking fund at the minimum their bye-laws prescribe, hold it in a savings account, and discover three decades later that it does not cover the structural work the building needs.
This is not mismanagement. It is arithmetic, and it is predictable enough that a committee can decide to do something about it.
The minimum is a floor, not a plan
The widely quoted figure — 0.25 per cent per annum of construction cost excluding land — comes from the Maharashtra model bye-laws. It is a minimum. It was never a calculation of what a building will actually need.
Run the numbers on a society with twelve crore of construction cost across a hundred flats. At the minimum rate that is three lakh a year, or two hundred and fifty rupees per flat per month. Over twenty years the fund reaches sixty lakh, before any investment return.
Whether sixty lakh is adequate for the structural repair a thirty-year-old building requires is the question worth putting to a general body — and it is a question, not a rhetorical one. For some buildings it is fine. For many it is not close.
Two forces working against you
The first is construction cost inflation, which over the accumulation period has frequently outpaced ordinary deposit returns. A fund that has been sitting in a savings account for fifteen years has quietly lost a meaningful share of its purchasing power.
The second is the temptation to spend it. Sinking fund is for major structural work — reconstruction, structural repair and strengthening, end-of-life replacement of major elements. Painting, minor plumbing renewal and ordinary repairs belong to the repair fund and the annual budget. A society that funds routine repainting from the sinking fund has spent the structural reserve on housekeeping, and the line is blurred a little more each time.
What a committee can actually do
Review the rate rather than inheriting it. Hold the fund as a distinct ledger account whose balance can be stated at any moment. Invest it within the instruments the applicable Act permits, laddered so maturities are staggered and withdrawal needs dual authorisation. And take the general body’s express approval before drawing on it for anything ambiguous.
The alternative to an adequate fund is a special assessment at the point of need — a large levy from whoever happens to own the flat that year, rather than from the owners across whose occupancy the building actually aged. That is worse in every respect, and it is what under-funding guarantees.