Public Deposits as Source of Finance
Meaning
Companies can raise funds by inviting their shareholders, employees and the general public to deposit their savings with the company at higher rate of interest than the interest on bank deposit. The period for which companies accept public deposits ranges between six months to 36 months. These are like Fixed Deposits with company.
MeritsÂ
1. Simple and easy:
The method of borrowing money through public deposit is very simple, instead of long legal formalities, advertisement in the newspapers is to be given and a receipt for the deposit is to be issued to the depositor.
2. No charge on assets:
Public deposits are not secured as they do not have any charge on the fixed assets of the company.
3. Economical:
Expenses incurred on borrowing through public deposits are much less than expenses of other methods like issue of shares and debentures.
4. Flexibility:
Public deposits are flexible source as companies can raise when it needs and can refund when it doesn't require.
Limitations
1. Uncertainty:
Only highly reputed companies can use this source for funds. There may be sudden withdrawals of deposits, which may create financial problems. Some people consider these as fair-weather friend.
2. Insecurity:
Public deposits do not have any charge on the assets of the concern. On the part of depositors, it may not always be safe to deposit savings with companies particularly those, which are not very sound financially.
3. Limits on the amount raised:
 There are limits on the amount of public deposits.
Public Deposits as Source of Finance are different from Fixed Deposits
- Public Deposits are offered by non-banking financial companies (NBFCs) and corporates whereas Fixed Deposits are offered by banks and post offices.
2. In case of Public Deposits there are Higher interest rates compared to bank deposits.
3. Public Deposits are Riskier due to lower regulatory oversight; Fixed Deposits are Safer due to higher regulatory oversight.
4. Public Deposits are with shorter tenure options than Fixed Deposits.
5. Public Deposits are Suitable for higher returns with moderate risk whereas Fixed Deposits are suitable for secure and stable returns.