Intercorporate

Deposits
GROUP 3
 Short-term Sources of Funds

Are normally used to Short-term financing is a

finance the day-to-day need for money for a short
operations of the period of time that is less
company. than a year.

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1
Intercorporate
Deposits
ICDs are unsecured short-term deposits made by one company with
another company.
These corporations must be registered under the Companies Act of
1956. A company with excess funds would lend to another company
in need of money.
It is generally used for working capital funding, normally for a period
of up to six months.
These are unsecured loans with high-risk factors.
All public companies, whether they have share capital or not,
have the option of using this finance. It includes.
- When a company acquires the security of another security.
- When a company gives loans to another company.
- When a company gives a guarantee to any person or institution
that provides loans to another company.

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Types of
Intercorporate Deposits
Call Deposits
They are the ones that can be called back at any time with one-
day prior notice. The interest rates on such deposits are generally
around 10%.
3 – Month deposits
These deposits are generally considered by the borrowers to solve
problems of short-term capital inadequacy. The annual rate of
interest given for three-month deposits is 12%.
6 – Month deposit
They are usually made with first-class borrowers, and the term for
such deposits is six months. The annual interest rate assigned for
this type of deposit is 15%.
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Features of Intercorporate Deposits
The broker in this market never reveals their list of
lenders and borrowers.
These deposits are suitable for borrowing
company to
solve their short-term financial
problems. Interest rates are higher than
bank rates.
They are free from bureaucratic and
legal problems
It is considered a last resort as a source of
finance. Primary dealers cannot lend in the ICD
market.
The money is locked in for the specified period.
It is shown as "investments" in the balance sheet.

Importance

4
It is a popular source of short-term
finance. The procurement procedure is
simple. INTERCORPORATE
ADVANTAGES
Surplus funds can be effectively utilized by the lending
company.
Such deposits are secured in nature.
Inter-corporate deposits can be easily
procured. Can raise capital quickly.

DISADVANTAGES
A company cannot lend more than 10% of its net
worth to a
single company and cannot lend more than 30% of its net
worth in total.
The market for such a source of financing is not structured.
The rate of interest is higher than other short-term sources
such as COD or short-term bank loans as it factors in the risk
premium.
It is a dangerous source of finance because deposits can be
withdrawn at any time, so it is also risky.
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Conclusion
Intercorporate Deposits help firms access
spare funds as loans, which benefit both the
borrower (as they earn interest) and the
lender (as they now have the money they
need).
The deposits are protected and obtaining
them is a simple process. The market is
made flexible and liquid by this process.

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Group 3
ALVAREZ, CHARLENE
CARENG, PHILIP JAYSON
GARCIA, JOANA KATE

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