Sinking Fund

[SING-king fund]

What is the definition of Sinking Fund?

A sinking fund is a separate account where money is regularly accumulated and specifically earmarked for the redemption of debt securities or preferred stock, helping ensure funds are available for these future liabilities.

Using Sinking Fund in an Example

A corporation issues bonds with a 10-year maturity and establishes a sinking fund to gather enough capital over time to repay the bondholders at maturity. Each year, a portion of the company's earnings is set aside into this fund, dedicated solely to the redemption of these bonds.

Using Sinking Fund in a sentence

The finance manager explained that they would need to increase the annual contribution to the sinking fund to meet the upcoming debt obligations on schedule.

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