Investment option for Apartment Owners Association

Apartment owners’ associations were put into effect to help neighborhoods maintain a look of uniformity and keep property values at their highest possible levels. The associations generally collect monthly dues in an amount barely sufficient to pay for common area maintenance and other expense. Traditionally, investment strategy was simple as interest rates were good and outflow in the form of expenses were manageable. Today, an Apartment owners association or RWA has numerous investment options to choose from, depending on its risk profile and expectation of returns.

Types of Investment Options

In the last few years, the money management has been challenging because of diverse trends in income and expenditure. Today choosing a best investment plan is difficult because there are so many investment options available. Here are some popular investment options for Apartment Owners Association.

• Fixed Deposit: This is considered to be a safe investment because all banks operated under the guidelines of Reserve Bank of India. The ideal investment time for bank Fixed Deposit (FDs) is 6 to 12 months as normally interest on bank less than 6 months bank FDs is likely to be lower than money market fund returns.

• Mutual Funds: Mutual Fund is a type of collective investment method by which many people pool their money in a fund and invest in various securities like stock, bonds or cash investments.  Depending on the objective of the funds like long term growth and low risk factor or high income growth with high risk factor or low growth rate and stability of principal, fund manager invests in respective fields on behalf of shareholders.

• Bonds: A bond issuer may be the government or corporate bodies. While corporate bonds typically offer greater returns, they also represent higher risk. Those with low risk appetites should opt for government bonds, which offer assured returns and regular income.

• Monthly Income Plans (MIPs): MIPs are suitable for conservative investors who want to earn marginally better returns than a debt-only portfolio. MIPs are launched with the objective of giving a monthly income to investors, but the periodicity depends upon the option chosen by the investor. These are generally monthly, quarterly, half-yearly and annual options. The associations need to bear in mind the fact that MIPs carry an element of risk. The best thing to do would be to opt for monthly or quarterly dividend payout, depending on fund needs.  A growth option is also available, where the investors do not receive regular dividends, but gains in the form of capital appreciation. The payout will be in the form of dividend and hence it is tax free in the hands of investors. Still, it offers a better tax advantage for the investors.

• Fixed Maturity Plans: Fixed Maturity Plans (FMPs) are a common form of debt investment offered by mutual funds. As the name suggests, these come with a fixed tenure and are a good alternative for short-term and medium-term needs. Unlike MIPs, fixed maturity plans don’t have any exposure to stock market and hence don’t carry any risk.

An Association or RWA can hire the services of a professional investment manager to organize their investments and update the portfolio. Today choosing a best investment plan is difficult because there are so many investment options available. Besides Banks, companies too mobilize deposits and offer higher interest than a bank deposits. To meet the short-term needs, experts advise investors or RWA to invest in short-term debt funds to an extent of 10% of their portfolio. Having a diversified asset portfolio is always advisable for an association or investors.