Explain the difference between 'Owner's Fund and Borrowed Fund'. - Vidyadip

Question

Explain the difference between 'Owner's Fund and Borrowed Fund'.

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Answer

Owner’s Fund	Borrowed Fund
It is the capital invested by the owners/shareholders of the business.	It is the money borrowed from external sources like banks or lenders.
It does not require repayment and carries no fixed obligation.	It must be repaid with interest within a specified period.
Owner bears the business risks and losses.	Borrowed funds reduce the ownership risk but increase financial obligations.
Examples: Equity shares, retained earnings.	Examples: Loans, debentures, public deposits.

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Companies often utilize public deposits as a source of short-term working capital to meet their financial needs.These deposits, accepted for periods ranging from six to thirty-six months, allow companies to pay fixed interest to depositors, who act as creditors. While public deposits provide easy access to funds and incur lower costs compared to bank loans, they come with risks for depositors, especially during economic downturns. Additionally, government regulations are in place to safeguard depositor interests and prevent potential misuse by companies.
(1) What is a public deposit, and how long can it typically be accepted?
(2) How do public deposits benefit companies financially?
(3) What risks do depositors face when investing in public deposits?
(4) Why might new or weak companies find it challenging to obtain public deposits?
(5) What measures does the government take to protect depositors?