Sinking Fund Call

AAA

DEFINITION of 'Sinking Fund Call'

A provision allowing a bond issuer the opportunity to buy outstanding bonds from bondholders for a set rate, using money (a sinking fund) from the issuer's earnings saved specifically for security buybacks. Because it adds doubt for investors over whether the bond will continue to pay until its maturity date, a sinking fund call is seen as an additional risk for investors.

INVESTOPEDIA EXPLAINS 'Sinking Fund Call'

Securities that have a sinking fund call provision provide higher yields to make up for the additional risk associated with holding them. Also, if the bonds are called, the call price is usually paid at a premium.

Borrowers who opt to have a sinking fund call mitigate interest rate risk, allowing for the opportunity to buy back outstanding securities and issue new ones with lower interest rates.

RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Sinkable Bond

    A bond issue that is backed by a fund, called a sinking fund, ...
  3. Sinking Fund

    A means of repaying funds that were borrowed through a bond issue. ...
  4. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  5. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs ...
  6. Callable Bond

    A bond that can be redeemed by the issuer prior to its maturity. ...
RELATED FAQS
  1. I have discovered that a bond I am interested in has a sinking fund. What does this ...

    First, understand that a sinking fund provision is really just a pool of money set aside by a corporation to help repay a ... Read Full Answer >>
  2. A corporate bond I own has just been called by the issuer. How can a company legally ...

    Bond issues can contain what is referred to as a call provision, which is a right afforded to the issuing company enabling ... Read Full Answer >>
  3. What is the relationship between the hurdle rate (MARR) and the Internal Rate of ...

    In capital budgeting, projects are often evaluated by comparing the internal rate of return, or IRR, on a project to the ... Read Full Answer >>
  4. What is the rationale behind the effective interest rate?

    There are several different effective interest rates. In accounting, the effective interest method examines the relationship ... Read Full Answer >>
  5. What is the difference between compounding interest and simple interest?

    Interest is the cost of borrowing money, where the borrower pays a fee to the owner for using the owner's money. The interest ... Read Full Answer >>
  6. What is the relationship between modified duration and interest rates?

    Modified duration is a formula that measures the value of a bond in relation to changes in interest rates. Modified duration ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Bond Call Features: Don't Get Caught Off Guard

    Learn why early redemption occurs and how to avoid potential losses.
  2. Investing Basics

    What's the Primary Market?

    The primary markets are where investors can get first crack at a new security issuance.
  3. Investing Basics

    Treasury Inflation-Protected Securities (TIPS)

    Treasury inflation-protected securities are treasury securities that make adjustments for inflation as reflected in the Consumer Price Index.
  4. Investing Basics

    What is the Coupon?

    In the financial world, “coupon” represents the interest rate on a bond.
  5. Investing Basics

    Explaining the Coupon Rate

    Coupon rate is the stated interest rate on a fixed income security.
  6. Retirement

    Facing Retirement? Look Beyond 100% Bonds

    Retiring doesn't mean putting all your money in bonds. There are two things to consider when it comes to be invested in bonds: growth and inflation.
  7. Mutual Funds & ETFs

    Is the PowerShares (PFEM) ETF a Good Bet Now?

    What you need to know if you are considering trading PowerShares Fundamental Emerging Markets Local Debt ETF.
  8. Mutual Funds & ETFs

    Anatomy of Emerging Markets Debt ETF (EMLC)

    This emerging market bond ETF offers a high yield, but there are dangers. Find out why.
  9. Trading Strategies

    How to Pick the Best Dividend Stocks

    Dividend stocks can make you rich, but you have to be patient.
  10. Trading Strategies

    4 Quality Dividend Stocks You Need to Consider

    Looking for quality stocks that also pay dividends? Consider these four.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center