This is a brief (not a legal) note on the advantage of public deposit made by the general public under the Companies Act. What advantage public deposit have.
I personally do not see it as a safe investment avenue for the general public. Unless you have a risk-bearing capacity to invest the same amount in the volatile stock market, it is advisable not to invest in Public Deposit.
If we look into legal drafting, legal contract and enforceability, it is simple, understandable, and easily enforceable.
Public Deposit for a company is a cheaper source of capital for companies and better return on investment for the public making a deposit.
At a time when banks usually provide unsecured business loan at the rate of 20–24%, a public deposit may be available at 16–20% or even lower rate.
When we compare public deposit for a company with a normal bank fixed deposit instrument which provides 8–12% return on investment or 10–14% return on SIPs, it is on the higher side.
This difference in the rate of returns comes from the removal of administrative and other costs associated with middlemen called Bank or Financial institution which also provide a layer of safety, risk assessment and better-informed decision making.
Always remember higher return couple with higher risk. General Public may not understand all associates business risks involved in case of public deposits.
A risk for the public deposit for companies may be much higher depends upon a volatile business environment. There is no deposit insurance in case of public deposit for companies.
We all are aware, credit ratings are no more considered as safe and bona fide assessment of risk.
You may visit Chapter V – CA2013 – AishMGhrana for an understanding of the law governing public deposit for companies.
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