sinking fund

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sinking fund. Originally devised in 1717 as one of numerous schemes to reduce the national debt. Legislation provided that any surplus funds from government revenues were to be reserved for paying off both capital and interest accumulated before Christmas 1716. A new scheme, in 1786, administered by national debt commissioners, declared that the dividends on government stock would be used to pay off debt in the following year so that eventually the debt would be abolished. But at the end of the Napoleonic wars the national debt was £16 million greater than it would have been without the sinking fund because of the obligation to purchase stock at low interest rates during the war with funds borrowed at high rates of interest in the market. It was phased out during the 19th cent.

Clive H. Lee

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sinking fund, sum set apart periodically from the income of a government or a business and allowed to accumulate in order ultimately to pay off a debt. A preferred investment for a sinking fund is the purchase of the government's or firm's bonds that are to be paid off. Usually the fund is administered by a trustee. See amortization.

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sink·ing fund • n. a fund formed by periodically setting aside money for the gradual repayment of a debt or replacement of a wasting asset.