What is an amortisation fund?

An amortisation fund is a reserve specifically set up to finance the gradual redemption of a bond. This type of fund is often used to ensure that sufficient resources are available to meet future redemption obligations. It thus forms a type of financial buffer which reduces the risk that the issuing party will encounter problems when redeeming the bond. This creates a certain stability for investors, which strengthens confidence in the bond. Comparable term: sinking fund.