TeachMeFinance.com - explain sinking fund
sinking fund -- a fund used to accumulate the cash needed to pay off bonds or other debt instruments, or to pay for future replacement of plant and equipment.
Sinking fund -- A fund to which are contributed amounts
of money at specified times for the redemption of a debt. For
instance, when a sinking fund is established for the redemption
of an issue of bonds a certain amount of money is added
to the fund each year (or at other stated intervals) until finally
the fund amounts to enough to redeem (pay off) the bonds.
Sometimes the money paid into a sinking fund is invested
in other bonds (or other securities) the interest payments
(or dividends) received from which help to swell the sinking
fund. It is not infrequently the case that a sinking fund is
established to redeem drawn bonds ; see Drawn bond.
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