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. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities. ...
  2. Assistance Agreement

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

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

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

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

    A lease agreement banks can offer to business customers that ...
Related Articles
  1. 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.
  2. Managing Wealth

    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 ...
  3. ETFs & Mutual Funds

    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.
  4. ETFs & Mutual Funds

    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.
  5. ETFs & Mutual Funds

    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.
  6. ETFs & Mutual Funds

    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.
  7. ETFs & Mutual Funds

    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.
  8. ETFs & Mutual Funds

    5 Secrets You Didn’t Know About Mutual Funds

    Learn five of the "secrets" about mutual funds that can have a significant impact on mutual fund choices and investor profitability.
  9. ETFs & Mutual Funds

    The Top 5 All Cap Core Mutual Funds for 2016

    Learn how to shop for the best all-cap mutual funds, and identify five funds that invest in companies of all sizes and offer good returns with low expenses.
  10. Retirement

    Should Balanced Funds Be Part Of Your Portfolio?

    Find out why you should include balanced funds in your portfolio, including the importance of customizability, diversification and professional management.
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. What are the differences between the Federal Funds Rate and LIBOR?

    Learn the key differences between the federal funds rate and the London Interbank Offered Rate, including currency denomination ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center