What Are Endowment Funds: Definition & Utilization

By Catherine Brock – Updated Jul 1, 2025 at 3:30 AM

Key Points

Endowment funds invest donations to generate income without reducing principal, aiding nonprofits.
Fund structures vary by use rules; withdrawals often limited to sustain funds long-term.
Vanderbilt University's endowment supports 23% of its budget, providing significant student aid.

Endowment funds are established to benefit a charity, nonprofit, or university. The funds are typically invested to provide income and financial stability for organizations that are heavily dependent on donations.

Let's explore how endowment funds work, including common structures, policies, and key metrics. We'll conclude with an overview of the endowment of Vanderbilt University.

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Brick pillar and wrought iron fence entrance to Harvard. — Image source: Getty Images.

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Budget

A financial plan that outlines expected income and expenses within a specific period, guiding effective financial management.

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Vanderbilt withdraws less than 5% of the endowment each year. Endowment distributions fund 23% of the university's operating budget, which includes an active financial aid program. Most undergraduate and graduate students at Vanderbilt receive some level of financial assistance.

The market value of the endowment declined 2% in 2023 after falling 4.4% in 2022. The declines occurred after Vanderbilt's endowment rose from $6.9 billion to $10.9 billion in 2021. The university attributed the increase to greater investing activity, new endowment gifts, and institutional endowments.

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About the Author

Catherine grew up in Southern California wearing a lot of black and trying to perfect the art of sarcasm. Prior to joining The Fool as a contract writer, Catherine was climbing the corporate ladder in marketing roles and dabbling in too many side hustles. When she's not writing, she can be found riding a horse in the country or shopping online for clothes.

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@catherinejbrock

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