What is the major difference between a sinking fund and purchase - ProProfs Discuss
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What is the major difference between a sinking fund and purchase fund?

Asked by Lleyton, Last updated: Oct 12, 2021

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

Here is a brief summary:sinking funds use two methods of fulfilling the obligation to retire securities:1. buy securities from interested sellers based on a specific price formula; or,2. call securities from investors, whether investors wanted to give up their securities ornot.purchase funds have only one way of retiring securities:1. buy securities from interested sellers based on a specific price formula.from the above information, you can see that if the sinking fund does not purchaseenough securities from interested sellers, they are then obligated to call back the restof the securities needed. the same is not the case for the purchase fund. a purchase fund attempts to make purchases from interested sellers, but if no one wants to sell orthe price isnt right, the purchase fund will fall short of the intended target.
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