Bond sinking fund

A fund maintained by the bond trustee for the retirement or repayment of bond’s principal, generally, before the date of bond's maturity. Bond's earlier repayment is handled through a sinking fund managed by trustee (usually a bank). The firm or the company provide equal payment (for the predetermined No. periods) to the trustee for the fund that would be used to repay bond’s principal before the maturity of bond

Typical types of sinking fund arrangements are:
  • Some sinking funds are of equal payments over the life of bonds or securities 
  • Some sinking fund start after 10 year of bond issuance 
  • Some sinking funds are insufficient to redeem full principal of bond result in large ‘balloon payment’ at the maturity of bond