Here’s the good news about this topic : Housing society management can now invest in a variety of investment plans according to the last Amendment in the Indian Trust Act, 1882. Now here is the cautious news about this topic : the management has to be mindful of the taxes. Housing society investments must be in the budget plan of all old and new communities. If this unprecedented situation of the pandemic has taught us anything, then it is this : in times of crisis, apartment communities bear a huge brunt of the trouble; therefore, now more than ever communities must aim for financial sustainability to ensure they are never cash starved.
What Housing Society Investments Can Be Done?
The Good Ol’ Fixed Deposit : Yes, you can invest in fixed deposits for your housing society. The suggestion is to invest in a co-operative bank. This helps to save taxes even on the interest. However, at the same time there must be proof that the amount invested has been collected from society members for the benefit of the community and should thereby qualify as member income. In case this is a non member income, it shall be taxable according to the prescribed slab rates of Income Tax. Fixed deposit investments, irrespective of being member or non-member income, in commercial banks shall attract Income Tax on interest.
Mutual Funds & Shares : A risky investment. Therefore, only large societies with a huge credit amount are advised to take part in these investments. What is different? Before the Amendment, housing society management had the permission to only invest in government securities or government guaranteed securities. However, now communities have the choice to invest in private schemes too, as long as the market capitalisation of the company is over 5000 crores INR. Legally, societies are now allowed to invest in equity funds of mutual funds and exchange trade funds. The caution to be applied here is to make these investments in serious consultation with a financial advisor to minimise the risk of losing capital and maximise the chance of getting back a substantial ROI.
Passive Funds like Index Funds : An index fund is a type of mutual fund or Exchange Trade Fund designed to track components of a market index.They are designed to imitate indexes like NIFTY. These stock market investments are low on capital investment and have a passive nature. According to July 2020, some of the top performing Index funds are UTI SENSEX ETF, SBI ETF SENSEX, Kotak Sensex ETF, LIC MF ETF – Sensex, HDFC Sensex ETF, etc. Since its passively managed, risks are low and returns are usually good. An ideal investment would be to have a good mix of passively and actively managed funds, to take into consideration market slumps.
Things To Remember :
- Definitely consult a financial advisor and a tax advisor before making any investment. You must be aware of the market risks involved, the tax implications and the ROI.
- The best way to manage housing society investments is by going digital. Digital housing society management systems help you to keep a track of your investments. You can check out reports early on about how your investments are performing to take a quick decision about continuing or discontinuing it.
- Definitely do thorough market research of your chosen investment plan. Do not compare with neighboring societies. What works for them, may not work for you.
- Most importantly, your capital of investment should come from the excess savings done from your income after you have taken care of your Community taxes, Sinking Funds, Repair Funds, Emergency Funds.