Donations which are deductible for the donors are usually what funds the endowment funds, they are then used for specific purposes.
The principal amount remains intact since the financial endowments are typically structures, while investment income is still available for immediate funding for the use of keeping a non-profit organization functioning efficiently. A portion of the principal is released for use only after a period of time, since most of the large donations to endowment funds are structured. There is an impact over a longer period of time created by the delayed use of the donations. However, the endowment fund management are encouraged to grow the income from the fund by the delayed use of the funds, in order to ensure that the operational needs are covered.
Specific uses that are stated by a donor may be what is given with the endowments, further complicating disbursements. Investment managers that have clear investment goals, manage most large endowment funds, and allocate that money into a variety of investments.
Policies of endowment funds
There are three components that most endowment funds have, which governs withdrawals, investments, and usage of funds. They are –
- Investment policy – How aggressive the manger can be when seeking to meet return targets is and what types of investments a manager is permitted to make is dictated by the investment policy. In order to assure that the pool money is managed for the long term, specific investment policies are had by many endowment funds, which are built into its legal structure. There can be hundreds of endowment funds of larger universities can have, if not they have thousands of smaller funds that invest the pools of money in various asset classes and securities. Long term investment goals, like specific rate of return or yield are typically had by funds. The types of investments within the funds or the asset allocation, as a result is designed to meet the long term returns that are set forth in the fund’s objectives.
- Withdrawal policy – The amount the institution or organization is permitted to take out from the fund at each instalment or period is established by the withdrawal policy. On the basis of the amount of money in the fund and the needs of the organization the withdrawal policy can be based. However, there is an annual withdrawal limit for most endowments.
- Usage policy – The purpose for which the fund can be used is explained by the usage policy, and also it helps ensure that all funding is being used effectively and appropriately, and adhering to these purposes. Teaching, research, scholarships, fellowships, and public service is supported by many endowments.