Question

Explain the following term/concept: Secured Deposit

Hint:

The word 'secured' is the key. Just like a 'secured loan' from a bank is backed by an asset (like a house or car), a 'secured deposit' is backed by the company's assets, making it a safer investment for the public.

Answer 1

Meaning: A Secured Deposit refers to a public deposit (a form of loan from the public to a company) that is backed by a charge on the tangible assets of the company. This means the company pledges specific assets as collateral for the deposit. In the unfortunate event that the company fails to repay the deposit amount or the interest, the depositors (through a trustee) can claim and sell these pledged assets to recover their money. Key Aspects:

Collateral: There must be tangible assets pledged as security.
Safety for Depositor: It provides a higher degree of safety to the depositor compared to an unsecured deposit.
Debenture Trustee: A debenture trustee is appointed to protect the interests of the depositors and hold the charge over the assets on their behalf.
Legal Requirement: As per the Companies Act, 2013, companies accepting deposits must create a charge on their assets for an amount not less than the amount of deposits accepted.