What is an endowment fund?

An endowment fund is a special account that is created to generate income to be used for a specific purpose. Funds of this type are sometimes created to create an income stream to fund research projects, award scholarships to qualified applicants, or even provide assistance to individuals who apply for financial assistance from the fund. An endowment fund is designed to run in perpetuity, making it possible to provide long-term financial support.

One of the distinguishing features of an endowment fund is that the principal amount held in the account is not disbursed for any reason. This principal amount is invested in order to generate a consistent return; It is this declaration that effectively serves as personal and institutional support to any entity that complies with the provisions governing the disbursement process established for the fund. As the value of the return may vary over time, the actual value of disbursements made from the fund will reflect the value of surplus funds currently available.

A common example of an endowment fund is associated with education. It is not uncommon for individuals and foundations to establish funds that help needy students pay the cost of attending colleges, technical schools, or other institutions that provide specialized training in a particular field. The fund may provide scholarships or be established to provide one-time grants to individuals eligible for assistance. In general, grants can be reapplied for each calendar year.

The endowment model is also a common means of providing financial support to research organizations. For example, an organization that is conducting research to find a cure for a specific health problem may receive a grant that can be used for operating costs, purchasing supplies, or any other expense associated with supporting a research effort. As long as the organization complies with the terms and conditions established by the endowment fund, it is possible to continue receiving financial support, depending on the return the fund obtains on the principal's investment within each financial year.

In many countries around the world, it is possible to establish an endowment fund for almost any purpose. Religious organizations with members in multiple countries sometimes establish endowment funds that allow members in need to attend distant gatherings such as conventions and conferences from time to time. In the United States, many state public broadcasting networks are funded in part by regular donations from endowment funds established by companies and individuals. Chairs endowed at various universities are funded, at least in part, by contributions from one or more foundations through grants.