Understanding different fund types is crucial for nonprofit accounting and donor stewardship. For fundraisers, it answers the question, “Where can we spend this money?” For donors, “How will my gift be used?”
For organizations using a nonprofit CRM like DonorPerfect, fund types can be categorized and designated for accurate reporting, accounting, and stewardship.
The sections below explain the different types of nonprofit funds
Administrative funds (TEF/C)
An administrative fund (sometimes called TEF/C, or “trustees’ endowed fund for capacity”) is set aside to cover the costs of running the nonprofit or foundation itself.
Characteristics
- Pays for salaries, office operations, and governance
- Ensures the organization can fulfill its mission sustainably
Significance
Without administrative funds, nonprofits may struggle to cover overhead, even if program-specific funding is strong.
Agency funds
An agency fund is created by a nonprofit but held and managed by a community foundation on the nonprofit’s behalf.
Characteristics
- Provides investment expertise and economies of scale
- Nonprofit retains use of the funds but not direct management
- Can be endowed or non-permanent
Example
A small arts nonprofit might establish an agency fund with its local community foundation to ensure long-term stability and investment growth.
Area of interest funds
Similar to field of interest funds, area of interest funds are geographically focused.
Example
- A donor may create an area of interest fund restricted to programs in “Southwest Philadelphia”
- A community foundation might manage multiple area funds for local neighborhoods
Significance
These funds are valuable for place-based philanthropy and ensure that resources stay within a community.
Discretionary funds
A discretionary fund gives nonprofit leadership — often the board or executive director — flexibility to direct money where it is most needed.
Characteristics
- Can be funded by donors who trust the organization’s judgment
- Provides agility in responding to emergencies or opportunities
Example
A discretionary fund may allow a food bank to expand distribution quickly in response to a natural disaster.
Stewardship tip
Because discretionary funds are flexible, nonprofits must report transparently to maintain donor trust.
Field of interest funds
A field of interest fund is restricted to a general area of charitable work, but not to a specific program or project.
Characteristics
- Donor specifies a broad interest (e.g., “arts education” or “mental health”)
- The nonprofit or foundation determines which programs fit within that field
Example
A donor may create a field of interest fund for “youth development,” giving the nonprofit flexibility to support mentoring, after-school activities, or sports.
Non-permanent funds
A nonpermanent fund is established for a specific use but is not intended to exist forever. Once the money is spent, the fund is closed.
Characteristics
- Typically created for a short- or medium-term project
- May be designated by the donor or the nonprofit
- Ends when the balance reaches zero
Example
A local nonprofit may create a non-permanent fund to build a community playground. Once construction is complete, the fund is spent and closed.
Significance
Non-permanent funds are useful for targeted campaigns and one-time initiatives. They provide clarity to donors and accountability for nonprofits.
Other kinds of nonprofit funds
To complete the glossary, here are several other fund types that nonprofits commonly manage:
Endowment funds
- Permanent funds where the principal is invested and only income or a set percentage is spent
- Provide stability and long-term sustainability
Quasi-endowment funds
- Board-designated funds that function like endowments but can be spent if needed
- Provide both flexibility and stability
Capital funds
- Created to support building projects, renovations, or large equipment purchases
- Often raised through capital campaigns
Reserve funds
- Rainy-day savings set aside for emergencies or revenue shortfalls
- Demonstrate responsible financial planning to donors and watchdogs
Restricted funds
A restricted fund holds money that can only be used for a specific purpose, as defined by the donor.
Characteristics
- Legally binding restriction; nonprofits cannot repurpose without donor approval
- May be temporary (time-restricted) or permanent (endowed)
Example
A donor gives $100,000 “restricted for children’s literacy programs.” The nonprofit must use the funds only for literacy-related expenses.
Restricted fund designations in DonorPerfect allow nonprofits to separate revenue streams, ensuring compliance and making it easy to report back to donors on how funds were used.
Risks
Too many restricted gifts can tie a nonprofit’s hands, creating “paper wealth” that cannot support general operations.
Scholarship funds
Scholarship funds are established to provide financial support for education, typically for students in need or those pursuing specific fields of study.
Characteristics
- Often donor-restricted for specific eligibility criteria
- Can be endowed (permanent) or nonpermanent
- May be administered by nonprofits, schools, or community foundations
Example
A scholarship fund may require recipients to be first-generation college students majoring in Science, Technology, Engineering, and Mathematics (STEM) fields.
Scholarship fund management is easier with DonorPerfect by linking gifts to fund codes, tracking recipient eligibility, and reporting outcomes to donors.
Unrestricted funds
An unrestricted fund is the most flexible type of support. Donors allow the nonprofit to decide how to use the funds based on current needs.
Significance
Unrestricted funds are the lifeblood of nonprofit operations. They pay for overhead, staff salaries, and core infrastructure — the essentials that keep the mission moving.
Example
General donations given without stipulations are considered unrestricted.
Stewardship tip
Nonprofits should continually explain to donors why unrestricted support is vital. Transparency about how overhead supports mission delivery builds trust.
Best practices for managing fund types
1. Donor communication
- Always clarify fund restrictions with donors upfront
- Report back on how funds were used to build trust
2. Balanced portfolio
- Avoid over-reliance on restricted funds
- Cultivate unrestricted and discretionary support to keep operations flexible
3. Compliance
- Restricted and endowed funds must be honored legally
- Violating donor intent can result in legal consequences and reputational damage
4. Technology integration
- Use CRMs like DonorPerfect to code donations by fund type
- Generate reports by fund to support board oversight, audits, and donor stewardship
Overview
Nonprofit funds tell the story of how resources flow from donor to mission:
- Non-permanent funds fuel short-term projects
- Restricted and unrestricted funds balance donor intent with organizational flexibility
- Scholarship, discretionary, field, and area of interest funds ensure that money serves specific purposes
- Agency and administrative funds keep organizations stable and accountable
- Endowments, quasi-endowments, capital, and reserve funds provide long-term sustainability
For nonprofits, mastering fund types isn’t just about accounting — it’s about transparency, trust, and stewardship. With tools like DonorPerfect, organizations can manage funds accurately, honor donor intent, and communicate clearly. Ultimately, the way funds are structured and reported reflects the integrity of the nonprofit sector itself: ensuring every dollar given is used with purpose and accountability.
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