Should You Consider Investing in National Savings Certificate?

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    If you are a conservative investor who prefers consistent returns over uncertainty, national savings certificate (NSC) could prove to be a good start. This savings bond is offered by India Post (as one of its savings schemes) and is backed by the government, which means that your returns will be guaranteed and your deposits will be safe.

    Should You Consider Investing in This Tax Saving Fixed Income?

    Features of NSC:

    • You can invest as less as Rs 100 and there is no maximum limit on the investment that can be made.
    • The scheme has a lock-in period of five or ten years. Currently, the NSC VII issue (5 years) is open for subscription.
    • The current interest rate on NSC is 7.6 percent per annum and it is compounded annually. It means that an investor's deposit of Rs 100 will grow to Rs 144.23 in 5 years.
    • The scheme can be opened by any adult Indian citizen (who has attained 18 years of age) in his/her own name, a minor's name or as a joint account with another adult.
    • An NRI or HUF cannot invest in the National Savings Certificate scheme.
    • The scheme is available in any post office and selected banks.
    • The interest earned on the certificate is taxable every year. There is no TDS.
    • Premature withdrawal is not allowed except in case of death of the investor or on submitting a court order.

    Why should you consider investing in NSC?

    Like any investment, you will want to know what are the benefits of investing in the scheme.

    • Firstly, the interest rate is higher than that of a regular bank FD for 5 years period (6.75 on SBI FD).
    • It is safe as it is backed by the government and will, therefore, guarantee that you will get your returns.
    • You can take a loan against the deposits made to an NSC, using it as collateral.
    • A tax exemption is allowed under the section 80C on deposits made towards NSC and also the interest earned each year except on maturity. Since the interest earned annually is reinvested into the scheme, it is eligible for tax exemption under section 80C as a deposit made.
    • Unlike FD, you do not need a lump sum amount, you can start with as less as Rs 100 and keep making deposits as an when you can in multiples of Rs 100.
    • You can transfer the certificate from one post office to the other conveniently. It can be transferred to another person only once between the date of issue and maturity.
    • The interest that you earn is compounded annually and reinvested into the NSC.
    • You can nominate your family member (including a minor) to receive the corpus on maturity in case of unfortunate death.

    Conclusion:

    Investing in a National Savings Certificate is better than equity-linked savings schemes (ELSS) in terms of market risks associated with them. ELSS, however, could fetch you higher returns in a period of 3 years, if you willing to risk your deposits. NPS (National Pension Scheme) gives you a higher return (8 to 10 percent), but your funds will be locked till retirement and are exposed to market risks as well. PPF (Public Provident Fund), on the other hand, gives you the same provisions as NSC and also the same interest rate but you cannot withdraw from the scheme for 15 years. Consider your investments as per your goals (retirement or short-term funding) and how much risk you are willing to take with the money you set aside.

    Story first published: Thursday, July 12, 2018, 11:45 [IST]
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