CAN YOU PLEASE DESCRIBE THE DIFFERENCE BETWEEN A PURCHASE FUNDAND - ProProfs Discuss
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Can you please describe the difference between a purchase fundand sinking fund?



Asked by Joshua, Last updated: Oct 14, 2021

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

Purchase fund: company is required to attempt to purchase a specified number oftheir securities in the open market provided the price is at or below a stipulated price.sinking fund: company is required to retire a specified number of their securities eachyear. the company can (1) attempt to purchase their securities in the open marketprovided the price is at or below a stipulated price; or (2) call back the required numberof securities from investors; or (3) a combination of (1) and (2).the purchase fund may not be successful each year in retiring the specified number ofsecurities because market conditions may not be right to carry out the purchase andtheres nothing wrong with that based on the terms of the purchase fund agreement. asinking fund will always retire the correct number each year. even if the sinking fundcannot make the required purchases, the company has the option of calling thesecurities to ensure that the correct amount of securities is retired.
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