Can a Management Corporation ( MCST) invest its monies for better ROI?


Can a Management Corporation ( MCST) invest its monies for better ROI?

August 28, 2021

The bank interest rates from fixed deposits had fallen from a high of more than 2% per annum before COVID-19 period to about 0.5% per annum currently. Many people felt that placing monies as fixed deposits in banks at such low interest rate is like giving monies away to the banks. Some opined that only people whom do not know how to invest, will place their monies as fixed deposits with the banks. Lately, there have been more questions asked about whether an MCST is allowed to invest its management fund or sinking fund for better returns. Section 38(7) of the Building Maintenance & Strata Management Act (BMSMA) provides that an MCST may only invest any monies in its management fund or sinking fund in any manner permitted
by law for the investment of trust funds. The monies in an MCST’s account are deemed to be held in trust and any investment is therefore subjected to the Trustees Act. Unless there is a restriction imposed against the Council from investment, the BMSMA does not
require the Council to seek approval from a general meeting for investment of its monies. Consider

the following scenarios:
1. What if the Council of an MCST had invested in a stock say SIA, about March 2019, when the stock was trading for more than $9.50 and when SIA was then considered a premium stock?
2. What implication would the Council face when SIA was trading at its low of about $3.50 when the COVID-19 pandemic started in March 2020?
3. And more than two years later now in early August 2021, when the stock has just recovered to only $5 per share?
4. What if the Council had invested in REITs, Bonds or other financial instruments that were considered less volatile? Financial experts used to advise that an individual should only invest in stock using his excess money. The Management and Sinking Funds of any MCST are estimated largely based on its incurred and anticipated liabilities. The reserves of most,if not all MCSTs are earmarked for major repairs and replacements of the common property. There is very little or no excess. It is always therefore good to be prudent.

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