How To Understand an Endowment Fund

If you are part of an institution like schools, hospitals, and churches, you might already be familiar with the endowment fund. This is actually the financial fund collected from donors that are used for general operations as well as other special projects. The purpose of the fund is not for temporary projects alone, but it is for a lifetime support for an institution.

The concept of having an endowment fund is definitely simple. An institution receives a foundation fund from a donation but it will not be spent at any chance. Instead, the fund will be invested.

How an Endowment Fund is Utilized

The process of using endowment funds can be best explained in these following steps:

1. A foundation receives funds from a donor or several donors.
2. The endowment management group uses the money to invest on something so it will grow in value.
3. Any of the yearly growth of the investment can be used for any purpose like charity grants and endowment management costs.
4. Over the years, the original foundation endowment fund is growing, even doubling the original market value.

Types of Endowment Funds

There are actually different kinds of endowment financial fund. Usually, the type of fund depends upon the demands or wishes of donors themselves. Here are a few kinds of endowment funds:

• Designated Funds. This type is actually given to an organization or project specifically requested by the donor.
• Unrestricted Funds. This endowment fund type can be used for any purpose. However, it is usually invested to the most urgent need of the community.
• Field of Interest Funds. The donor of this fund does not request to give it to a particular agency; rather it is to be given to an area where the donor has a special interest.
• Agency Endowments. This is a financial fund directly given to an agency, which is intended for the agency’s use as well as its successors.

Components of Endowment Funds

Though endowment funds can be for different purposes, all are actually dealt with similarly using the following three components:

1. Investment Policy. In this case, the investment policy determines what the kinds of investments the endowment management team can enter to meet certain return targets.
2. Withdrawal Policy. This component actually determines how much the organization can get from charitable funds in a certain period of time. The amount is usually defined by the needs of the institution as well as the amount that is left in the foundation fund.
3. Fund Usage Policy. With this accounting policy, it is always made sure that management uses the fund only in accordance with the rules or policy set out for the specific fund.

With the existence of endowment funds, it is not only one organization that benefits. Actually all the people that are covered by the project of a specific organization can experience the advantages of having this kind of charitable fund. Usually, this kind of donation can either be given directly to the institution or through legacy foundations.