Definition of Sinking fund:
A sinking fund helps companies that have floated debt in the form bonds gradually save money and avoid a large lump-sum payment at maturity. Some bonds are issued with the attachment of a sinking fund feature. The prospectus for a bond of this type will identify the dates that the issuer has the option to redeem the bond early using the sinking fund. While the sinking fund helps companies ensure they have enough funds set aside to pay off their debt, in some cases, they may also use the funds to repurchase preferred shares or outstanding bonds.
A sinking fund is a fund containing money set aside or saved to pay off a debt or bond. A company that issues debt will need to pay that debt off in the future, and the sinking fund helps to soften the hardship of a large outlay of revenue. A sinking fund is established so the company can contribute to the fund in the years leading up to the bond's maturity.
Reserved created by periodically setting aside certain sums in a custodial account (as cash or investment in marketable securities) for future replacement of an asset or repayment of a liability.
How to use Sinking fund in a sentence?
- My dad told me that he was setting aside funds for a sinking fund that we would need at some point.
- Paying off debt early via a sinking fund saves a company interest expense and prevents the company from being put in financial difficulties in the future.
- Callable bonds with sinking funds may be called back early removing future interest payments from the investor.
- A sinking fund is an account containing money set aside to pay off a debt or bond.
- Sinking funds may help pay off the debt at maturity or assist in buying back bonds on the open market.
- The sinking fund was increasing at an unexpectedly high rate which concerned the management about determining the optimal use of our funds.
- You may want to set up a sinking fund to save you just incase everything goes bad at the same time.
Meaning of Sinking fund & Sinking fund Definition