Group Presentation on

SINKING FUNDS
(Financial Management)
 Group Members
Aadya Pandey
Arpit Sahay
Shama Kumari
Vishal Kumar
Tanmay Mandal
What are Sinking Funds
A sinking fund is a type of fund that is created and set up
purposely for repaying debt. The owner of the account
sets aside a certain amount of money regularly and uses
it only for a specific purpose.

It is different from emergency funds. An emergency fund

is money set aside for unknown reasons while with
sinking funds, we know exactly what that money’s for
and when to use it.
 Advantages of Sinking Funds
• Brings in Investors : Investors are very well aware that companies
or organizations with a large amount of debt are potentially risky.
However, once they know that there is an established sinking fund,
they will see a certain level of protection for them if a case of a default
or bankruptcy occurs in the company.

• Lower Interest rates : A company with poor credit ratings will find
it difficult to attract investors unless they offer higher interest rates. A
sinking fund offers alternative protection for investors so that
companies can offer lower interest rates.

• Stable Finances : A company’s economic situation is not always definite, and

certain financial issues can shake its stable ground. However, with a sinking fund,
the ability of a company to repay its debts and buy back bonds will not be
compromised. This results in good credit standing and confident investors.
 How to set-up Sinking Funds
 Deciding the purpose of Sinking Funds :
Before setting up a sinking fund, one must be sure for what
purpose sinking fund is being made. Sinking funds should not be
made for anything, the reason and purpose should be very clear
and fruitful for the company

 Where to store Sinking Funds

A wise choice should be made on where to store money for
Sinking funds as per the amount of investment and liquidity i.e.
how easily funds released for it’s use in the Company
 Amount of Investment
The amount of money being investing in should be also calculated
as per the requirements to avoid any wastage of money and time.
While doing so, rate of Inflation should also be taken in charge.
Key Takeaways on Sinking Funds
A sinking fund might seem quite easy to start and understand. But most
companies fail to create one due to lack of discipline to set aside the
amount regularly. It is an account that holds money set aside to pay off a
bond or debt. It helps in paying off the debt on maturity or in buying
back the bonds in the open market. Also, paying off debt early with this
fund saves the company from the interest expense.
Having this fund will boost investor confidence. In other words, a
company with high debt is a risky investment option. However, once
investors know that the company has a sinking fund, a certain level of
protection is ensured. In case of bankruptcy or default, at least the
investments are guaranteed.
Thank You
Any questions are
much appreciated