An endowment fund is a financial asset, often managed by educational institutions or nonprofit organizations, designed to provide ongoing support for specific initiatives, like scholarships, through its investment returns. Here’s how it typically works:

• Initial Investment: Donations are pooled together to create a large initial fund, which serves as the principal or "endowment."
•  Investment Strategy: The principal is invested in various assets—such as stocks, bonds, and other financial instruments—with a strategy aimed at generating steady returns over the long term.
• Preservation of Principal: To ensure the fund’s sustainability, the principal amount is rarely spent; instead, only the income generated from investments is used to support the designated purpose, such as scholarship.
• Annual Distribution: Each year, a portion of the returns—typically between 4% to 5%—is distributed to fund scholarships, while any excess returns are reinvested, allowing the endowment to grow over time.
• Lasting Impact: With sound management, an endowment fund can continue providing financial support indefinitely, helping multiple generations of students in need reach their educational goals.

By creating a lasting resource, an endowment fund enables ongoing impact, making it a sustainable way to invest in the future of education.