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What is an Endowment Fund?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 13 October 2014
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An endowment fund is a special account that is established in order to generate revenue that will be used for a specific purpose. Funds of this type are sometimes established to create a revenue stream to fund research projects, provide scholarships to qualified applicants, or even to supply aid to individuals who apply to the fund for financial help. An endowment fund is designed to function in perpetuity, making it possible to provide financial support over the long-term.

One of the distinguishing characteristics of an endowment fund is that the principal amount contained in the account is not disbursed for any reason. This principal amount is invested in a manner that creates a steady return; it is this return that is actually used to supply personal and institutional support to any entity that meets the provisions that govern the disbursement process established for the fund. Since the amount of return can vary over time, the actual amount of the disbursements made from the fund will reflect the amount of surplus funds that are currently available.

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A common example of an endowment fund is associated with education. It is not unusual for individuals as well as foundations to establish funds that help needy students pay for the cost of attending college, technical schools, or other institutions that offer specialized training in a given field. The fund may provide scholarships, or be set up to provide one-time grants to individuals who qualify for assistance. Generally, the grants can be re-applied for each calendar year.

The endowment fund model is also a common means of providing financial support to research organizations. For example, an organization that is conducting research on finding a cure for a specific health issue may receive an endowment that can be used for operational costs, the purchase of supplies, or any of the other expenses associated with supporting a research effort. As long as the organization complies with the terms and conditions put in place by the endowment fund, it is possible to continue receiving financial support, based on the return that the fund realizes from investment of the principal within each financial period.

In many countries around the world, it is possible to establish an endowment fund for just about any purpose. Religious organizations with memberships in multiple nations sometimes establish endowment funds that allow needy members to attend distant gatherings such as conventions and conferences from time to time. In the United States, many state-level public broadcasting networks are funded in part by regular grants from endowment funds established by businesses and individuals. Endowed professorships at a number of universities are funded at least in part by contributions from one or more foundations by means of endowment funds.

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