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All About Corpus Fund

Saturday, March 03, 2018

These days, almost everyone is connected with redevelopment some way or the other. Corpus fund is a term often discussed in this aspect. Ramesh S. Prabhu explains what exactly it is

The corpus fund in the case of redevelopment project is a lump sum amount paid by the developer to the existing flat owners to cover up the additional amount of property tax and maintenance charges due to the redevelopment. In other words, prior to the redevelopment, if the maintenance cost per sq. feet is Rs.5/- per month and after the redevelopment, if the maintenance charges and the property tax together comes to say Rs.20/- per sq. feet per month -- there is an increased burden of Rs.15/- per sq. feet per month.

Let us assume the existing area of the flat owner is 500 sq. feet and accordingly his monthly maintenance at the cost of Rs.5/- per sq. feet per month shall be Rs. 2,500/- and yearly shall be Rs.30,000/-  and due to redevelopment when the maintenance charges goes by Rs.15/- per month per sq. feet, the additional monthly maintenance on 600 sq. feet shall be Rs.20*100(additional area)+Rs.15*500)=Rs.2000+7500= Rs.9500. The yearly additional burden shall be Rs.9500*12= 1,14,000/- . If the average rate of return on the investment is considered to be 6% per annum, in order to get it, we need a capital amount of Rs.19,00,000/-.

(The same is arrived at by dividing 1,14,000 by 0.06).  Thus the corpus fund required or estimated in this case shall be Rs.19,00,000/-.  In order to demand such corpus fund the same is divided by the existing area of the flat which is 500 = 19,00,000/500= The per square feet corpus could be Rs.3800/-. If the same is in extended suburban or other than Mumbai area, the maintenance per square feet will be very less and accordingly, the corpus also will be calculated on such a lower basis. Secondly, the corpus is also calculated based on the available floor space index or the built up area available to sell in the market and the net profit available after allocating the areas to the existing members free of cost.

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