An endowment fund is a genuine donation of tangible or intangible assets to an institution, specifying that a donation is to be invested and the income earned from that donation must be spent for a specific purpose. Endowment funds are commonly managed by academic institutions, cultural institutions, religious entities, and other non-profit organizations.
Endowment funds are mostly organized through public charity funding, private firms or trusts. There are three types of endowment funds as listed below:
- True endowment funds: are stipulated with the condition, that it should be retained till the eternity and are not allowed to spend anyway.
- Term endowment funds: are demanded by the donor’s wish, to be expanded only after the stated period of time of expiration or at the occurrence of specified event.
- Quasi endowment funds: are the funds that must need to be retained for the purpose and intent as specified by the donor and earnings could only be expended when the specified purpose achieved.
There are main policies regarding the typical endowment funds:
- Investment Policy: It is a type of investments the manager makes in order to get the targeted return on the investment.
- Withdrawal Policy: It is the policy which determines the minimum and maximum amount institution can withdraw from the endowment fund at each period.
- Fund Usage Policy: It is the policy which ensures the proper use of money that is withdrawn from the endowment fund.
The financial operation decisions of the endowment fund are typically carried out by the board of trustees and are managed by the team of trustees or panel of professional managers. The financial operations of the endowment funds are merely designed to achieve the desired goals and objectives in efficient manner.
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