Sinking Fund
5paisa Research Team
Last Updated: 10 Jul, 2025 01:53 PM IST

Content
- What is Sinking Fund?
- Accounting for a sinking fund
- A real-world example of a sinking fund
- Other types of sinking fund
- The reasoning for sinking funds
- Advantages of sinking funds
- Examples
- Sinking fund vs Savings account
- Sinking fund vs Emergency fund
- Conclusion
A sinking fund, in simple terms, is the money set aside to pay off a debt. Investing comes with its own set of risks, and one of the biggest is the risk of default. To mitigate this risk, many bond issuers establish a sinking fund. This blog explores everything about a sinking fund.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. For detailed disclaimer please Click here.
Frequently Asked Questions
In the context of property, a sinking fund is a specific reserve fund set up by a body corporate or owner corporation to cover the cost of future capital works or significant repairs and maintenance in a strata-titled building or complex.
For certain types of entities in India, sinking funds are mandatory. For example, per the Companies Act 2013, every company that issues debentures must create a Debenture Redemption Reserve (DRR) to redeem the debentures. The DRR is a sinking fund that must be created out of the company's profits every year until the debentures are fully redeemed.