Choose the correct statement about Sinking Fund?

The correct answer is Option (3) → In this fund, a fixed amount at regular intervals is deposited for a fixed term

A sinking fund is built up by setting aside a fixed amount at regular intervals for a fixed period, so that, with compound interest, it reaches the sum needed for a particular purpose at a known future date, such as repaying a debt or replacing a machine.

Because the fund is created for that specific purpose and is meant to be used at the end of its term, it is not an account to be closed at any time or drawn on in an emergency.