What is meant by an endowment in a financial context?

In a financial context, the term "endowment" refers to funds established to provide ongoing financial support through investment income. Endowments typically consist of a substantial initial amount, often contributed by donors, and are invested strategically to produce revenue over time. The principal amount is usually kept intact, while the generated income is used to support specific programs, scholarships, or operating expenses for the organization, such as a university or non-profit.

The nature of an endowment highlights its purpose as a long-term financial asset designed to ensure sustainability. It allows organizations to rely on the investment returns rather than solely on direct contributions or operational revenue. This mechanism not only supports current needs but also safeguards future financial stability.