Answer» - Public deposit is an important source of financing short-term requirements of the company.
- Companies generally receive public deposits for a period ranging from 6 months to 36 months.
- Interest is paid by the companies on such deposits.
- The company issues a’ Deposit Receipt’ to the depositor.
- The receipt is an acknowledgment of debt/loan by the company.
- Deposits are either secured or unsecured loans offered by a company.
- It is considered a risky investment but investors can earn high returns on public deposits.
Advantages of deposits to the company: - It is an easier method of mobilizing funds during periods of credit squeeze.
- The rate of interest payable by the company on public deposits is lower than the interest from banks and financial institutions.
- It helps the company to borrow funds from a larger segment and thus, reduces dependence on financial institutions.
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