Question 1

What is a sinking fund?

Accepted Answer

A sinking fund is money set aside gradually, on a planned schedule, for a specific future expense you know is coming — a vacation, a large purchase, an annual insurance premium, or any goal with a known target amount and timeline.

Question 2

How is the required monthly saving calculated?

Accepted Answer

We work backward from your target amount using the standard SIP future-value formula, finding the fixed monthly amount that would grow to your goal by the deadline, at your expected rate of return.

Question 3

Should a sinking fund be invested or just saved?

Accepted Answer

For near-term goals (under 2-3 years), a safe, liquid option like a recurring deposit or liquid fund is usually preferred over market-linked investments, since you need the money to be there reliably on a specific date, not subject to market swings.

Question 4

How is this different from an emergency fund?

Accepted Answer

An emergency fund covers unplanned, unpredictable expenses and should always be accessible. A sinking fund is for a planned, known expense with a specific target date — you are saving toward something you already expect to happen.

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