What is Sinking Fund for?

Quek Soo Beng’s letter in the Today paper yesterday asked some pertinent questions about the Sinking Fund and the Town Councils Act and role with respect to the fund. For all intent and purposes, the money collected from the residents in the form of conservancy charges etc and placed in the Sinking Fund is for the purpose of maintaining the estate. It was never meant to be used for investment purposes. Should the Town Council intend to invest the money, the main concerns will be capital preservation and not risking it for higher returns. The provisions of the Town Councils Act may be give the wrong impression that it is expected of them to use the Sinking Fund for investment. This unintended function of the Town Council may lead to situations where the main function of the Sinking Fund be forgotten and with the residents contributing unnecessarily more money to it. When the Town Council sees its role as investing the money collected, then there is no limit as to what is enough in the Sinking Fund. And when there are profits from investments or when the Sinking Fund is bloating with excess, there will be no requirement to return the extra fund to the residents. And for all purposes, the residents may be expected to contribute more and more, for investments and more returns, and for the building up of a bigger reserve. It is therefore very important that the purpose of the Sinking Fund be made very clear, ie., to set aside enough money to maintain the estate. And when the amount is sufficient, then it should stop collecting or increase the conservancy charges. The collecting of conservancy charges is not for fun or for the purpose of keeping for rainy days or for investment. When there is a need for more money for estate management, the fees may be raised accordingly. For expediency and contingency purposes, Town Council may want to set aside a little more as a reserve. This amount too must be spelt out. Otherwise the reserve can be for 20 years or 100 years.