sinking fund
Noun: A sinking fund is a sum of money that is set aside and accumulated over time, typically through regular payments, into a separate and dedicated account. Its primary purpose is to repay a long-term debt or to redeem specific financial obligations, such as bonds or other debt securities, by their maturity date.
A sinking fund is established by a borrower (like a corporation or government) as a prudent financial strategy to ensure funds are available for future debt repayment. It reduces risk for lenders and can lead to better borrowing terms for the issuer. - The city council established a sinking fund to ensure it could repay the municipal bonds used to build the new library. - The company's bond indenture requires it to make annual contributions to a sinking fund.
- Sinking Fund Provision: A clause in a bond contract that mandates the issuer to create a sinking fund. This provision enhances the bond's creditworthiness.
- Sinking Fund Call: The issuer's right to repurchase (or "call") a portion of the outstanding bonds using the sinking fund's money, often at a predetermined price.
- Bond Sinking Fund: A specific type of sinking fund used explicitly for repaying bond debt.
- Sinking Fund Reserve: An accounting term representing the earmarked assets on a balance sheet.
- Redemption fund: A fund for redeeming securities.
- Amortization fund: A fund for gradually extinguishing a debt (note: this often implies a different, more systematic repayment structure).
- Debt Service: The cash required to cover the repayment of interest and principal on a debt. A sinking fund is a method of managing principal repayment.
- Callable Bond: A bond that the issuer can redeem before maturity. Sinking fund calls are one method of early redemption.
-
a fund accumulated regularly in a separate account and used to redeem debt securities
