Funding Agreement

DEFINITION of 'Funding Agreement'

A low-risk, fixed-income investment. A funding agreement offers a lump sum to the seller while providing the buyer with a fixed rate of return, which is often based on the LIBOR, the most popular benchmark in the world for short-term interest rates. Mutual funds and pension plans often buy funding agreements due to the safety, predictability and flexibility that they offer.

BREAKING DOWN 'Funding Agreement'

Funding agreements don't require registration and often offer a higher rate of return than money market funds. What's more, they are often tied to put options that allow an investor to terminate the contract after a specified period of time. As one might expect, funding agreements are most popular with those wishing to preserve rather than grow their investment capital, which is why they are generally bought by institutional investors.

RELATED TERMS
  1. Assistance Agreement

    An agreement between a lending government, financial institution, ...
  2. Forward Rate Agreement - FRA

    An over-the-counter contract between parties that determines ...
  3. United States Treasury Money Mutual ...

    An investment fund that pools money from investors to purchase ...
  4. Trading Partner Agreement

    An agreement drawn up by two parties that have agreed to trade ...
  5. Conditional Sales Agreement

    A lease agreement banks can offer to business customers that ...
  6. Smithsonian Agreement

    An agreement reached by a group of 10 countries (G10) in 1971 ...
Related Articles
  1. Professionals

    Structure and Tax Considerations of Buy-Sell Agreements

    Structure and Tax Considerations of Buy-Sell Agreements
  2. Investing

    Advising FAs: Explaining Mutual Funds to a Client

    More than 80 million people, or half of the households in America, invest in mutual funds. No matter what type of investor you are, there is bound to be a mutual fund that fits your style.
  3. Retirement

    Analyzing The Best Retirement Plans And Investment Options: Mutual Funds

    What they are: A professionally managed pool of stocks, bonds and/or other instruments that is divided into shares and sold to investors. Pros: Diversification; liquidity; simplicity; ...
  4. Mutual Funds & ETFs

    Mutual Funds: Different Types Of Funds

    No matter what type of investor you are, there is bound to be a mutual fund that fits your style. According to the last count there are more than 10,000 mutual funds in North America! That means ...
  5. Mutual Funds & ETFs

    A Mutual Funds Guide for Young Investors

    Learn how mutual funds work, why they are so popular and how younger investors can get started by putting mutual funds in their IRAs or 401(k)s.
  6. Mutual Funds & ETFs

    2016's Most Promising Money Market Funds

    Learn information on some of the most promising money market mutual funds for investors to consider adding to their portfolio in 2016.
  7. Options & Futures

    20 Investments: Mutual Funds

    What Is It? Are you someone who wants to invest (or already does), but doesn't want to bother deciphering a company's numbers and deciding whether or not the stock is a good buy? Or are you someone ...
  8. Mutual Funds & ETFs

    Trading Mutual Funds For Beginners

    Learn about the basics of trading and investing in mutual funds. Understand how the fees charged by mutual funds can impact the performance of an investment.
  9. Mutual Funds & ETFs

    5 Characteristics of Strong Mutual Fund Shares

    Discover some of the basic characteristics shared by good mutual funds that investors can use to help them in selecting funds.
  10. Mutual Funds & ETFs

    Make Sure You Avoid Adding These Mutual Funds to Your 401(k)

    Find out which five types of mutual funds you should avoid in your 401(k), including why buying this year's hottest fund is likely a losing bet.
RELATED FAQS
  1. Do mutual funds invest only in stocks?

    Discover which types of mutual funds invest in only equities, or stocks, and which mutual funds also include investments ... Read Answer >>
  2. How do I calculate a bond's modified duration using Excel?

    Understand the benefits of investing in a money market mutual fund, and learn why investors use this type of account in volatile ... Read Answer >>
  3. How do I calculate the loan-to-value ratio using Excel?

    Learn what a mutual fund and a money market fund are, and understand the differences between each and how they serve various ... Read Answer >>
  4. What are the main differences between a provident fund and a pension fund?

    Learn about some of the primary differences between the benefits of provident funds and pension funds, two types of retirement ... Read Answer >>
  5. Under what circumstances would someone enter into a repurchase agreement?

    Learn when investors want to enter into a repurchase agreement, such as to gain quick access to liquidity and enjoy flexibility ... Read Answer >>
  6. Can mutual funds only hold stocks?

    Learn about which types of mutual funds consist of only stocks, which may include stocks in addition to other assets and ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center