Understanding Sinking Funds
A sinking fund is a method of saving for future debt repayment. It allows a company to gradually accumulate the money needed to pay off a bond on its due date.
Lower Default Risk
A sinking fund makes corporate bonds safer for investors by guaranteeing funds for bond repayment. By reducing default risk, it makes the company's bonds more appealing to investors.
By reducing default risks and securing bonds, a sinking fund helps a company gain trust, potentially improve its credit ratings, and attract more investors for future fundraising.