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The importance of permanent funds
A permanent fund is a stable investment providing annual income for an organization’s operations or programs. It is invested to preserve and grow principal to benefit an organization today and for generations to come.
A nonprofit with a permanent fund is well positioned to think strategically about its future. With a stable and growing source of annual funding, an organization can expand its programs or be responsive to new and emerging needs. Even well-established nonprofits recognize the importance of permanent funds to provide stability in the face of budget cuts and economic downturns. A donor’s gift to a permanent fund sustains an organization’s mission long into the future and sends a strong signal to others that the organization is accountable, financially mature and responsive to local need.
Types of permanent funds
A nonprofit organization can establish an Agency Endowment Fund or a Long Term Fund. Both funds are managed to benefit an organization over time and both funds provide annual distributions. The principal of an Agency Endowment is never used. By contrast, the principal of a Long Term Fund may be used if specific, unusual circumstances arise. Interested donors should ask each organization about the type of fund they established and their reasons for doing so.
A donor can also establish an endowment fund at SCVCF and designate a favorite organization – or a program -- as its beneficiary. This strategy allows donors to more narrowly define the use of their contribution.
The difference between a permanent fund and an annual contribution
Annual gifts and permanent funds serve different purposes. While an annual contribution is directed to an immediate program or operating expense, a gift to a permanent fund is a contribution to a high interest investment account intended to provide future dividends. Although a permanent fund is designed for the future, it pays annual income to support an organization’s current operations or programs.
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