This fund is also created out of profit. It is a specific reserve which is created to meet heavy expenditures of research and development of new product in the market. In this perfect competition business world, all most all the businesses require to spend for research of new product.
- It helps to research and develop the new product.
- It helps to earn good profit due to the invention of new and better product in the market.
- It reduces the divisible profits of the shareholders.
- Small organization having poor financial position may not be able to create such fund.