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Financial Management

Notes Disadvantages of CP

It is available only for large and financially sound companies.

!
Caution Commercial Paper (CP) cannot be redeemed before the maturity date.

3.4.5 Inter-corporate Deposits (ICDs)

A deposit made by one firm with another firm is known as Inter-corporate Deposits (ICDs).
Generally, these deposits are usually made for a period up to six months. Such deposits may be
of three types:
1. Call Deposits: Deposits are expected to be payable on call. In other words, whenever its
repayment is demanded on just one days notice. But, in actual practice, the lender has to
wait for at least 2 or 3 days to get back the amount. Inter corporate deposits generally have
12 per cent interest per annum.
2. Three Months Deposits: These deposits are more popular among companies for investing
the surplus funds. The borrower takes this type of deposits for tiding over a short-term
cash inadequacy. The interest rate on these types of deposits is around 14 per cent per
annum.
3. Six Months Deposits: Generally, the inter-corporate deposits are made for a maximum
period of six months. These types of deposits are usually given to ‘A’ category borrowers
only and they carry an interest rate of around 16% per annum.
Features of ICDs

1. There are no legal regulations, which make an ICD transaction very convenient.
2. Inter-corporate deposits are given and taken in secrecy.
3. Inter-corporate deposits are given based on borrower’s financial sound, but in practice
lender lends money based on personal contacts.

Self Assessment
Fill in the blanks:
8. ………………refers to loans taken by a company normally from commercial banks for a
short period, pending disbursement of loans sanctioned by financial institutions.
9. Commercial paper represents a short-term ……………promissory note issued by firms
that have a fairly high credit rating.

3.5 Venture Capital Financing
The venture capital financing refers to financing of new high risky venture promoted by qualified
entrepreneurs who lack experience and funds to give shape to their ideas. In a broad sense,
under venture capital financing, venture capitalists make investments to purchase equity or
debt securities from inexperienced entrepreneurs, who undertake highly risky ventures with a
potential of success.

Methods of Venture Capital Financing
The venture capital industry in India is just a decade old. The venture capitalist generally
finance ventures, which are in national priority areas such as energy conservation, quality

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