Sinking fund is a special fund set up by bond issuers to ensure the maturity or non-maturity repayment of various bonds issued. Under normal circumstances, the repayment of bonds is paid from the issuer's future income, but in order to ensure the maturity of bonds or the holder's request for early payment under special circumstances, some governments or companies have also set up special sinking funds.

The national sinking fund is generally arranged from the national budget, and there are two main ways to form the company sinking fund: one is to withdraw according to a fixed amount or a certain proportion of issued bonds; The second is to extract according to a certain proportion of after-tax profits or sales revenue.

Some companies must set up sinking funds when issuing bonds according to relevant laws and regulations, and some companies include setting up sinking funds as one of the issuance conditions in bond issuance contracts to enhance the attractiveness of bonds issued to investors.

Extended data:

The sinking fund withdrawn by the company shall be kept and used by the trustee (such as a bank or company) of the company's bonds before the maturity date. The trustee of corporate bonds can reinvest before the maturity date of the bonds, but must ensure the need to repay the bonds on the maturity date.

The terms of sinking fund are not required by every borrowing company, but if such terms are stipulated in the bond trust contract, the attractiveness of bonds can be obviously increased. For the company, the establishment of sinking fund increases the stability of operation, but it has a disadvantage that it will affect the turnover of funds.

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