Sinking fund

In North America and elsewhere where it is common for government entities and private corporations to raise funds through the issue of bonds, the term is normally used in this context.

While used by Robert Walpole in 1716 and effectively in the 1720s and early 1730s, it originated in the commercial tax syndicates of the Italian peninsula of the 14th century, where its function was to retire redeemable public debt of those cities.

[4] Lord North recommended "the Creation of a Fund, to be appropriated, and invariably applied, under proper Direction, in the gradual Diminution of the Debt".

[6] In modern finance, a sinking fund is, generally, a method by which an organization sets aside money over time to retire its indebtedness.

The State Treasury Department has strict guidelines for expenditure of fund dollars with the penalty for misuse being an eternal ban on ever seeking the tax levy again.

In this case, the firm's gain is the bondholder's loss – thus callable bonds will typically be issued at a higher coupon rate, reflecting the value of the option.

Sinking funds can also be used to set aside money for purposes of replacing capital equipment as it becomes obsolete, or major maintenance or renewal of elements of a fixed asset, typically a building.

In this application, the term "sinking fund" represents a type of category in a person's budget that they allocate money towards for future expenses including those that are long-term and short-term.