Sources of Corporate Finance — Secretarial Practice STD 12 Commerce / Arts — Question

• 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.