Key Term

What is Endowment?

Definition

An endowment is a financial asset, typically in the form of an investment fund or donation, that is established to provide long-term funding for a charitable organization or nonprofit institution. The principal amount is kept intact while the investment returns or interest generated from the fund are used to support the organization's mission, programs, or operating expenses. Endowments can be either permanent (where the principal must remain untouched) or term (which allows access to principal after a specified period).

Significance

Endowments play a crucial role in the sustainability and long-term viability of charitable organizations by providing a reliable source of ongoing income. They help reduce dependence on annual fundraising and create financial stability that allows organizations to plan for the future with greater confidence. Endowments also demonstrate institutional strength to potential donors and can attract additional gifts. For donors, establishing or contributing to an endowment offers a way to create a lasting legacy and ensure their charitable impact continues in perpetuity, while potentially providing tax benefits and the opportunity to influence the long-term direction of causes they care about.