A sinking fund debenture is a municipal debt structure where the municipality makes regular contributions to a dedicated fund that accumulates over the debt term to repay the principal at maturity. Unlike serial debentures where principal is repaid in installments throughout the term, sinking fund debentures have a single large principal payment at the end. The municipality sets aside money annually (the 'sinking fund contribution') which is invested to grow toward the required final payment. This approach can reduce total borrowing costs if sinking fund investments earn returns exceeding the debenture interest rate. Sinking fund management requires discipline to ensure adequate accumulation for the balloon payment.