Endowment funds are generally the donated funds that are received by various nonprofit organizations like churches, educational institutions, vocational training centers, hospitals etc. The amount that is donated are eligible for tax deduction. The amount thus obtained through donations can only be used for the regular ongoing operations of that organization or for any other specified purpose.
Endowment funds are composed of 3 components :
- Investment Policy : For any type of investment or fund, it is essential that the objective is clearly laid down. It is essential that it is mentioned how much risk the fund manager is entitled to take to optimize the return on investing the fund
- Withdrawal Policy : This policy laid down the amount of fund that the institution can take out for funding its various requirements. The amount of money that can be withdrawn depends on the requirement and also on the amount that will be remaining after the withdrawal
- Fund Usage Policy: Since the fund is donated, the accounting must be made properly. The purposes for which the funds may be used should be clearly mentioned in this part to avoid any complications in future and the trust of people is maintained.
