Public Deposits are deposits raised by organisations directly from the public to meet medium and short-term financial requirements. The organisation issues a deposit receipt as acknowledgment of the debt.

The merits of public deposits are: (i) The procedure is simple and does not contain restrictive conditions like a loan agreement; (ii) The cost is generally lower than borrowings from banks and financial institutions; (iii) They do not usually create any charge on assets, which can be used as security for other loans; (iv) Depositors have no voting rights, so control of the company is not diluted.

The demerits of public deposits are: (i) New companies find it difficult to raise funds through this source; (ii) It is an unreliable source as the public may not respond when the company needs money; (iii) Collection becomes difficult when the size of deposits required is large.

Retained Earnings refer to the portion of net earnings retained in the business for future use. It is a source of internal financing or self-financing.

The merits of retained earnings are: (i) It is a permanent source of funds; (ii) It does not involve explicit cost in the form of interest, dividend or floatation cost; (iii) Funds generated internally provide greater operational freedom and flexibility; (iv) It enhances the capacity to absorb unexpected losses; (v) It may lead to increase in market price of equity shares.

The demerits of retained earnings are: (i) Excessive ploughing back may cause dissatisfaction among shareholders due to lower dividends; (ii) It is an uncertain source as business profits fluctuate; (iii) The opportunity cost is often not recognised, leading to sub-optimal use of funds.