What is a reserve fund?

Reserve fund is a fund that is set up to cover the expenditure that will appear in the future. This includes planned expenditures, routine expenditures on which you can rely on, and unexpected expenses. The aim of the reserve fund is to ensure that money is earmarked to cover the expenditure, so that these expenses do not require the spending of general funds. For some types of enterprises and business, the creation of a reserve fund may be required by law. In such organizations, tenants pay fees to cover maintenance, repairs and other expenditures related to the operation of the building. Some fees are collected in the reserve fund, which is used to process well -known expenditure and unexpected. For example, a cooperative council could be aware that there are payments for two floor insurance regularly with wear. By saving money for preparation, the Council can ensure that these expenses are easily resolved when they appear.

Another example of the reserve fund is the pension reserve fund. In some industries, employees have the opportunity to apply with a pension plan that provides payouts in their retirement. Payments from employees who work are included in reserve entertainment to ensure that the funds are available when retiring and expecting to pay. It is common to invest this money on behalf of the fund members.

Reserve funds are also established by governments, financial institutions and private households. The size of such a fund may vary, but the general goal is to regularly store funds in the reserve to accumulate interest and allow the fund to grow. When expenditures arise, they can be paid out of the reserve fund, rattling than forcing people to try to realize expenditure with general funds.

Usually, the reserve fund is maintained in highly liquid format, because one never knows when the expenses will occur. For example, a household could keep the savings actionet to cover unexpected expenditure. Something like a deposit certificate would not be a good choice for cancellation of money, because the sanctions must be paid if the time of payouts. People are often encouraged to put some money into longer -term investments to think far from the future, while maintaining other savings funds in the liquid reserve fund for immediate expenditure or expenditure that are likely to arise over the next few years.