The deposits that are raised by organisations directly from the public are known as public deposits. Rates of interest offered on public deposits are usually higher than that offered on bank deposits. The amount raised from public deposits is generally used by the company for meeting the requirement of working capital. It can take care of both medium and short-term financial requirements.
Merits of Public Deposits
(i) The procedure of obtaining deposits is simple and does not contain restrictive conditions as in case of a loan agreement.
(ii) Cost of public deposits is generally lower than the cost of borrowings from banks and financial institutions.
(iii) Public deposits do not usually create any charge on the assets of file company and hence the assets can be used as security for raising loans from other sources.
(iv) The control of the company is not diluted as the depositors do not have voting rights.
Demerits of Public Deposits
(i) New companies generally find it difficult to raise funds through public deposits due to lack of goodwill.
(ii) It is an unreliable source of finance as the^iblic may not respond when the company needs money.
(iii) Collection of public deposits may prove difficult, particularly when the size of deposits required as large.