Traditionally, most resident welfare associations have been dependent on options such as fixed deposits, which offer a fixed rate of return, to investment their fund base. The interest rates were good earlier and outflow in the form of expenses was manageable.

In the last few years, the money management for these associations has been challenging because of diverse trends in income and expenditure.

On the one hand, the interest rate offered on fixed deposits has been coming down in line with global trends. On the other, the expenditure required to maintain a property has been steadily going up. The situation has forced many to look at newer options and here is a helping hand for such associations.

Monthly income plans

As the name suggests, monthly income plans MIP offers monthly income. The product offered by mutual fund houses does not guarantee returns but one can expect the returns to be in the range of 10 per cent. The payout will be in the form of dividend and hence tax free in the hands of investors, though the mutual fund will be declaring dividends after paying the dividend distribution tax. Still, it offers a better tax advantage for the investors.

The MIP of mutual funds invests a small portion, ranging from 10-20 per cent, in equity and hence they have the ability to generate higher returns. For instance, during good stock market years, the returns from these MIP have been as high as 15-18 per cent, but during bad market years, they can turn negative. Hence, associations need to bear in mind the fact that they carry an element of risk. Then how does one use MIP to advantage?

The best option will be to opt for monthly or quarterly dividend payout option depending on fund needs. For instance, if an association has a fund base of Rs.25 lakh, it can opt for a fixed deposit for its monthly expenditure need and invest the surplus, which could be in the range of Rs.2-5 lakh, in MIP.

The advantage with such a strategy is that the corpus of Rs.2-5 lakh has the potential to grow even in terms of capital and this, in turn, can take care of long-term needs of the building. The association can also look at annual dividend option to take care of extraordinary expenses without dipping into capital.

Fixed maturity plans

As the name suggests, fixed maturity plans FMP come with a fixed tenure and are a good alternative for short and medium term needs. For instance, at present, FMP with a tenure of 100 days offer returns in the range of 6.5 per cent, whereas it is almost a percentage lower in the case of fixed deposits. Unlike MIP, fixed maturity plans do not have any exposure to stock market and hence do not carry any risk.

Corporate deposits

Besides banks, companies mobilise deposits from the public and the advantage is that they offer a higher interest rate than bank deposits. Companies with good credit rating, such as triple A, are as safe as bank deposits and they can be one of the options.

However, while choosing the product, the association should take into account its fund needs over a period of time and should also focus on the quality of the fund house. One can take professional help by taking the assistance of qualified financial planners for choice of scheme.

More importantly, as pointed out earlier, though MIP has the ability to generate higher returns, they carry an element of risk. But then returns can never be higher if risk is not taken.

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