Question

What is endowment fund? Explain with an example

Answer 1

Dear Student


We all know that a not-for-profit organisation receives several types of donations, gifts and monetary aids from various sources. All such monetary support forms part of endowment fund. Generally the endowments are attached with certain conditions as to their usage. The balance available in such funds is usually invested and only the income earned from such investments is used for specified purposes. This is done to ensure that the balance in the fund remains fixed.


For E.G
An NPO received gifts and donations of Rs 10,00,000/- . Out of this Rs 1,00,000/- is on the condition that this amount should be maintained for 5 years . Therefore the NPO invested this amount in Govt securities for regular income of 10% per year .

Now here Donation of Rs 1,00,000 /- received on certain condition and is invested for regular income . This type of donations form part of Endowment fund.

Regards