The public deposits refer to the deposits that are attained by the numerous large and small firms from the public. The public deposits are generally solicited by the firms in order to finance the working capital requirements of the firm. The companies offer interest to the investors over public deposits.
The rate of interest, however, varies with the time period of the public deposits. The companies generally offer 8 to 9 percent interest rate on the deposits made for one year.
The companies offer 9 to 10 percent interest rate over public deposits for two years while 10 to 11 percent interest rate is offered for the three year deposits. There are rules regulating the fixed deposits.
According to the Companies Amendment Rules 1978, here is the list of rules for public deposits:
The maximum maturity period for a public deposit is 3 years
The minimum maturity period for public deposits is 6 months
The maximum maturity period for a public deposit for Non-Banking Financial Corporation is 5 years
The public deposits of a company cannot go past 25% of free reserves and share capitals
The companies asking for public deposits need to publish information regarding the position and financial performance of the firm
The companies having public deposits need to keep aside the 10% of the deposits by 30th April every year that will mature by 31st March next year.
The various advantages of public deposits enjoyed by the companies are:
There is no involvement of restrictive agreement
The process involved in gaining public deposit is simple and easy
The cost incurred after tax is reasonable
Since there is no need to pledge security for public deposits, the assets of firm that can be mortgaged can be preserved
The disadvantages of public deposits from the company’s point of view are:
The maturity period is short enough
Limited fund can be obtained from the public deposits
The advantages of public deposits enjoyed by the investors are:
The interest rate is higher than the other financial investment instruments
The fund maturity period is short
The disadvantages of public deposits from the investors’ pint of view are:
The interest that is charged on the public deposits does not enjoy tax exemption
There is no pledging of security against public deposits
Last Updated on : 27th June 2013