Talk:Sinking fund

Where?
"A Sinking Fund was a device used in the 18th century to reduce national debt. It was first introduced by Robert Walpole in 1716 and was used effectively in the 1720s and early 1730s."

Where was it used? In every nation of the world? -Mysidia 04:39, 12 Jun 2005 (UTC)


 * In Western Europe at first then spread out (unless the ancient Babylonians had sinking funds. They seem to have invented everything!). --DelftUser (talk) 03:39, 30 December 2009 (UTC)

What?
It is still not clear to me what a sinking fund is. Is it a loan? Did people give money to the state? How does a sinking fund work? How does a mandatory sinking fund work? A "device ... to reduce national debt" could be anything, like robbing citizens. (comment by 213.46.147.47)


 * It is a saving account with the interest added each term (which gives it the name sinking fund). If the state has to pay $90 each year to service its debt but collect $100 from taxes that were enacted to service the debt, then it puts $10 in a saving account. When there is a $100 in the fund it buys back a bond (let us assume that each bond cost $100 and pays $10). Now the state pay $80 while saving $20, thus the debt is reduced.--DelftUser (talk) 03:39, 30 December 2009 (UTC)

Only applicable to debt with variable present (market) value?
My understanding (see http://www.investopedia.com/ask/answers/05/053105.asp) is that a sinking fund acts as a buffer for paying down debts >>that have a variable market value<< (i.e. bonds or shares). A company, school district or nation may wish to pay down its debt (or repurchase its shares) but also wish to time those payments to when the market value of the debt or shares is low. That way they get a better deal. Those times may not coincide with moments when there is a lot of cash in the current account, so they segregate the repayment money into the sinking fund to make sure they have it when the market opportunity arises. Unless you have obligations with a variable market value, you don't need a sinking fund.

Perhaps the fact that a sinking fund is only applicable to debts with a variable market value (i.e. bonds) should be given a bit more prominence?