Reserve Fund Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Reserve Fund, written in plain English, along with examples of how it is used.

What is Reserve Fund?

(n) A reserve fund is the money en-marked or kept apart for attaining specific goals in future as and when it occurs so that the event can be met without difficulty. For example housing cooperatives society maintains reserve fund for repairs, corporation maintains reserve fund for debenture redemption etc so that when it is actually required to do it can be done without affecting the normal operations

History and Meaning of Reserve Fund

A Reserve Fund is an amount of money set aside to cover future costs or expenses. The purpose of a Reserve Fund is to ensure that funds are available to cover unexpected costs or the long-term repair and replacement of assets.

In several jurisdictions, Reserve Fund is mandatory as part of strata or home ownership associations to ensure that the association has adequate funds available to carry out the necessary maintenance and repair of the common property.

Examples of Reserve Fund

  1. A housing cooperative society sets aside a reserve fund to pay for any repairs that may arise in the future.
  2. A corporation establishes a reserve fund to pay off debentures.
  3. A car manufacturer has a reserve fund to finance future warranty claims.
  4. An individual sets up a retirement account as a reserve fund to cover expenses during their golden years.
  5. A business owner sets up a reserve fund to cover emergencies or unforeseen costs.

Legal Terms Similar to Reserve Fund

  1. Sinking Fund: A sink fund is a legal provision requiring banks to set aside funds earmarked to offset outstanding debts or bonds.
  2. Escrow Account: An account in which funds are held by an impartial third party until certain conditions are met.
  3. Trust Fund: A legal entity set up to manage assets for the benefit of an individual or organization.