• BENEFITS OF A SINKING FUND
• FURTHER READING:

To raise funds for expansion, product development, research, and other purposes, companies some times borrow money by issuing bonds, which are long-term promissory notes issued by companies to investors. Bond agreements or indentures generally require corporations to make regular interest payments—often semiannually—during the term of the bond. Corporations then must pay the maturity value or face value—the amount an investor initially paid—on the date of maturity. In addition, a bond agreement may contain a sinking fund provision that requires a corporation to repay a certain number of bonds in certain years, or for a corporation to retire part of a bond issue annually until fully repaid.

Traditionally under a...