Short Answer

A Reserve Fund is a fund set aside by a cooperative society to meet future contingencies and to ensure financial stability. It is funded by allocating at least one-fourth of the net profit of the society towards this fund.

Detailed Explanation

Section 38 of the Gujarat Cooperative Societies Act, 1961 states that a cooperative society must maintain a Reserve Fund, which is a crucial financial reserve for the society. This fund is created to cover unexpected expenses, future projects, or any financial emergencies that may arise. The Act mandates that at least one-fourth of the net profit of the society should be allocated to this Reserve Fund.

In practice, this means that when a cooperative society generates profits, a portion of these profits must be set aside for the Reserve Fund before any other allocations or distributions are made. This ensures that the society has a financial cushion to fall back on in times of need.

Real-world Scenarios

• Example: A housing cooperative society in Gujarat earns a net profit of Rs. 1,00,000 in a financial year. As per Section 38 of the Act, the society must allocate at least Rs. 25,000 (one-fourth of the net profit) to the Reserve Fund to maintain financial stability.

• Example: A cooperative credit society makes a net profit of Rs. 50,000. Following the legal requirement, the society allocates Rs. 12,500 to the Reserve Fund to ensure it has funds for future contingencies.

• Example: A cooperative society running a grocery store records a net profit of Rs. 2,00,000. By law, the society sets aside Rs. 50,000 towards the Reserve Fund to safeguard its financial health.

Reference

• Section 38 of the Gujarat Cooperative Societies Act, 1961: Official PDF