Wednesday, 11 April 2012

All About NSC - National Savings Certificate

renjith krishnan
In Today's Market you have variety of Tax Saving Products. Products like ELSS Mutual Funds, ULIP, Endowment Insurance,Tax Saving Fixed Deposits, PPF, NSC, etc. Every Analyst on TV would air and convey the message "ELSS is best of available options". He is partially true; ELSS may not the best option for Investors with low risk appetite or somebody who is looking for schemes with assured returns.
In this article we are going to focus on National Savings Certificate (NSC). NSC is tax saving product having double benefits of tax saving and safe assured returns. NSC comes in two flavors one with 5 years lock-in period and other with 10 years lock-in Period.
Let’s Dive Deep:
Interest and Maturity Value:
NSC with 5 years lock-in comes with interest of  8.6% and NSC with 10 Years Lock-in comes with interest of 8.9%.
Here is the chart that shows the maturity value for 100 Rs invested in NSC schemes.

Maturity Value
NSC-5Years Lock-in
5 Years
NSC-10 Years Lock-in
10 Years

Where to Purchase:
Available in all Post Office in India. You can also buy them through authorized agents.
Minimum Value and Denominations:
Minimum value is 100/- Rs. NSC are available in various denominations Rs  100/-, 500/-,1000/-,5000/- 10,000/-.
Where to En-cash:
After Maturity you can en-cash NSC in authorized Post Office. You need have to carry the certificates and may have to furnish the necessary proof of identity.
Tax benefits: You get a tax benefit by investing in NSC. Investment up to 1 Lakh is eligible for 80C benefit. The annual interest earned further is reinvested and thus qualifies for the Tax benefit under Section 80C
Other Features of NSC
  • Returns are taxable.
  • Compounded half yearly.
  • No Tax is deducted @ Source.
  • Nomination facility available.
  • Duplicate Certificate can be issued.
  • Transferable from one person to another.
  • Transferable from one Post office to another.
  • Loan can be availed against NSC certificates.
  • Pre mature encashment not allowed (except in extreme conditions)
Are there any better options or alternatives to NSC?
PPF and Tax Saving FD’s are two tax saving options that come with assured returns.
Take Away:
In the first look the interest rates for NSC and lock in Period of 5 years might sound appealing but one should not forget that the returns are taxable. NSC might not be right option for somebody who is in the highest tax bracket. The post tax returns would be around 6% or so.  PPF might be relatively better option in comparison to NSC as the returns are tax free.   

Currently Banks are offering attractive interest rates for Tax Saving FD’s. A person in highest tax bracket might stand to gain more by investing in Tax Saving FD’s instead of investing in NSC with 5 years Lock-in. Dhanalakshmi Bank is offering 10.1% Interest for tax saving Fixed Deposits.
Would You Invest in NSC?


mohanlalith agarwal said...

Is that nsc one time investment like fd, or we can buy monthly basis like rd for 5yrs or 10yrs...plz let me know.

alok said...

my nsc matured in 2005 but i realised only now (2013) when i go to encash now will it be a very long and cumbersome process???

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