When a government of an organization provides financial resources, especially money, to finance a project or a program is known as funding. The various sources of funding are savings, donations, taxes, subsidies, venture capital, credit, grants, etc. Funds can be allocated for either short-term or they can be for long-term.
Funding can be defined as soft funding or crowdfunding and equity crowdfunding. Crowdfunding or soft funding refers to the grants, donations and subsidies which have no direct need for return on investment. Equity funding can be referred to as the facilitation of the exchange of equity ownership in a corporation or organization for capital investment.
The uses of funding
There are several uses of funds such as in starting a business, research or even for investment.
Funds play a vital role in starting a business or launching a start-up. Setting up a business requires large sums of many and at times an individual may not have the amount. Thus funds enable the individual or a group of individuals to start an enterprise. Thus, funds help in kick-starting a business idea.
Funds enable an organization or individual to carry out research in a chosen field, especially social science, science, technology, to name a few. Funding for research can either non-commercial or it may be commercial. Non-commercial funding is the money that is received through charities, donations, or the government and it enables an individual to carry on with his or her research work without any problems. Commercial funding is provided by the R&D department of a corporation or organization. In both cases funding allows the research work to go on.
Funding can also be used in investment with the aim to pursue the profits of an individual or the organization. Here money is gathered from a large number of investors by the fund management companies. These funds are then employed to buy securities.
Funds can also be used for many other purposes such as a university setting aside a certain amount of money to provide scholarships to the needy or deserving student. Even insurance companies use funds to pay for the claims of its customers. Even in the everyday life, people keep a certain amount of money that may come handy during a rainy day.
Funds help in meeting working capital needs of Businesses. The day-to-day running needs finance and it is provided by funds in the organization.
Funds also help in acquiring new fixed assets and investments for long-term needs of the organization.
The various types of funds are:
Money Market Funds
A money market fund can be defined as a kind of a fixed income mutual fund that invests in short-term debt securities which have minimal credit risk.
A bond fund, which is also known as a debt fund, is a kind of a fund that invests in bonds, etc.
An equity can be described as a mutual fund which primarily invests in stocks.
Other types of funds are Absolute Return Funds, Hedge Funds, Commodities Funds and Multi-Asset Funds.