Sinking fund

A sinking fund is a provision in a corporate bond issue that requires the issuer to set aside a specific amount of money at regular intervals to retire a portion of the bond before its maturity date. The funds accumulated in the sinking fund are used to redeem a predetermined amount of the outstanding bonds, reducing the total debt over time. This helps the issuer manage its debt obligations and provides investors with some assurance of repayment.

A sinking fund can be beneficial as it reduces the outstanding debt of the issuer, potentially improving the credit quality of the remaining bonds. By retiring a portion of the bond early, the issuer may also lower its interest expense, which can be advantageous for bondholders. Additionally, the presence of a sinking fund can enhance the liquidity of the bond by providing a mechanism for early redemption, giving investors more flexibility in managing their investments.

Non-sinkable

A non-sinkable bond does not have a sinking fund provision, meaning the issuer is not required to set aside funds for early repayment of the bond. This type of bond may carry a higher risk for investors as there is no guarantee of funds being available for repayment before maturity.

Sinkable

A sinkable bond means that the issuer is obligated to contribute to a sinking fund to retire a portion of the bond issue periodically. This can make the bond more attractive to investors as it reduces the risk of default and provides a degree of protection for their investment.