What are fiduciary funds in the context of financial management?

Fiduciary funds are specifically designed to hold and manage assets on behalf of others, reflecting a relationship based on trust. In financial management, these funds require a stringent level of accountability as they are not owned by the governmental entity but are instead held for the benefit of another party, such as individuals, organizations, or other governmental units.

The nature of fiduciary funds emphasizes the responsibility of the managing entity to act in the best interest of the beneficiaries. These funds can include things like pension trusts, investment trusts, or other types of trust funds. The key characteristic is that the managing entity does not use these funds for its own operational or marketing purposes, nor do they generate income from investments directly for the entity’s own use. Therefore, the concept of accountability and trust is central to understanding fiduciary funds within the broader context of financial management.