What are company deposits/public deposits?

COMPANY DEPOSITS/PUBLIC DEPOSITS : In order to meet, temporary financial needs,
companies accept deposits from the investors. Such deposits are called public deposits or
company fixed deposits and are popular particularly among the middle class investors. All
most all companies collect crores of rupees through such deposits. Companies were
offering attractive interest rates previously. However, the interest rates are now reduced
considerably. At present, the interest rate offered is 9 to 12 per cent.
On maturity, the depositor has to return the deposit receipt (duly discharged) to the
company and the company pays back the deposit amount. The depositor can renew his
deposit for further period of one to three years at his option. Many companies are now
supplementing their fixed deposit scheme by cumulative time deposit scheme under which
the deposited amount along with interest is paid back in lumpsum on maturity. Companies,
now, appoint managers (collecting agents) to their fixed deposit schemes. The managers
are usually reputed share brokers. They help companies in collecting the deposits and
also look after the administrative work in connection with such deposits.
At present, along with private sector companies, even public sector companies and public
utilities also accept such deposits in order to meet their working capital needs. This source
is popular and used extensively by the companies. The popularity of public deposits is due
to the following advantages:
(1) Public deposits are available easily and quickly, provided the company enjoys public
confidence.
(2) This method of financing is simple and cheaper than obtaining loans from commercial
banks. This makes public deposits attractive and agreeable to companies and also to
depositors.
(3) Public deposits enable the companies to trade on equity and pay higher dividends on
equity shares.
(4) The depositors receive interest on their deposits. This rate is higher than the interest
rate offered by banks. The interest is also paid regularly by reputed companies.
(5) The formalities to be completed for depositing money are easy and simple. There is
no deduction of tax at source where interest does not exceed a particular limit.
(6) The risk involved is also limited particularly when money is deposited with a reputed
company.