PUBLIC DEPOSIT INTEREST RATE RULES ADVANTAGES DISADVANTAGES

1. PUBLIC DEPOSITs
CHRISTIN RAJ

2. Public Deposits
Public deposits are an important source of financing the medium-term and
long-term requirements of a company.
The term 'public deposit' implies any money received by a company through
the deposits or loans collected from the public.
The public includes the general public, employees and shareholders of the
company but excludes the money received in the form of shares and
debentures.
The public deposits are generally solicited by the firms in order to finance
the working capital requirements of the firm.

3. INTEREST RATE
The companies offer interest to the investors over public deposits.
There is no restriction for interest rate
The companies generally offer RATE
☺ 8 to 9 percent interest rate FOR ONE YEAR
☺ 9 to 10 percent interest rate FOR TWO YEARS
☺ 10 to 11 percent interest rate FOR THREE YEARS

4. PROCEDURE TO RAISE FUNDS THROUGH PD
public deposits advertise in the newspaper
The advertisement highlights the achievement and future prospects
rate of interest which may vary depending upon the period for which money is deposit
It also declares the time and mode of payment of interest and the repayment of deposit
A deposit may get his money back before the date of repayment of deposits for which he will
have to give notice in advance

5. According to the Companies Amendment Rules 1978
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 NBFCs is 5
years
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.

6. FEATURES OF PUBLIC DEPOSIT
These deposits are not secured
They are available for a period ranging between 6 months and 3 years
They carry fixed rate of interest
They do not require complicated legal formalities as are required in the
case of shares or debentures

7. ADVANTAGES AND DISADVANTAGES from the company's point of view are:
The various advantages :
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

8. ADVANTAGES AND DISADVANTES from the investors' point of view are:
The advantages of public deposits
The interest rate is higher than the other financial investment instruments
The fund maturity period is short
The disadvantages of public deposits
The interest that is charged on the public deposits does not enjoy tax exemption
There is no pledging of security against public deposits

9. THANK YOU