What Is a National Savings Certificate?

When it comes to choosing a safe and secured investment scheme that offers fixed returns, today, you have plenty of choices. You can choose to invest in different instruments based to suit your specific financial goals and returns expectations. NSC or National Savings Certificate is one such option. It is known to be a low-risk investment option that offers a host of benefits.

The NSC is a fixed income government-sponsored scheme that you can open by visiting any post office or public-sector bank. It is primarily meant for the low to middle-income group. It allows you to save for the future while enjoying capital security and tax benefits.Like the PPF (Public Provident Fund) and post office FD (Fixed Deposit), the NSC is a fixed-income investment instrument. It is essentially a savings bond certificate that comes with you a maturity period of five years. You can buy it from a bank or post office either in your name, for a minor or with another adult as a joint account.While there is no maximum limit on the NSC's value that you can buy, you must know that the only investment up to Rs. 1.5 lakhs is subject to tax benefit under Section 80C of the Indian Income Tax Act.

The interest rate for NSC changes periodically as directed by the Ministry of Finance. Currently, the applicable NSC interest rate for Q1 FY 2020-21 is 6.8%. The interest in NSC is compounded annually, but it is payable only on the scheme's maturity.

• Fixed returns It is an excellent investment choice if you are looking for a low-risk savings opportunity that provides fixed returns. It gives you a fixed and guaranteed income.
• Tax-saving instrument If you are looking to reduce your annual tax liability, investment in NSC can help you get tax benefits up to Rs. 1.5 lakhs under Section 80C of the IT Act .
• Low-cost investment Since the NSC is specially meant for the low and middle-income groups, it is a low-cost investment instrument. You can invest in NSC with as little as Rs. 100 or in multiple of Rs. 100 as you deem fit. You can also increase the investment at any time during the investment period.
• Easy Accessibility You can easily invest in a National Savings Certificate by visiting any nearby post office or bank. All you have to do is submit the necessary documents and comply with the KYC requirements.
• Loan Facility In the event of an emergency, you can use the NSC as collateral to secure a loan. Most banks in India accept NSC as a security document against the loan. If you have invested in NSC through a post office, you must get a transfer stamp from the postmaster to transfer the account to the bank.
• Nomination facility Just like any other investment, you can appoint any family member, including minors as a nominee for the scheme. In the event of your unfortunate demise before the end of the investment tenure, the nominee will get the scheme benefits.
• Maturity amount Once the scheme matures, the full corpus is handed over to the investor without any TDS deduction.
• No withdrawal The investment in NSC can be withdrawn only after maturity; premature withdrawals are not allowed except in an emergency like critical illness or death.

There is no maximum limit on the value of the NSC that you can purchase. But, only investments up to Rs. 1.5 lakhs are subject to tax deduction under Section 80 C of the IT Act. Additionally, the interest earned on the certificates for the first four years of the investment duration is reinvested, i.e., added to the initial investment and hence is non-taxable.However, the interest earned in the 5th year is not reinvested, and hence it is taxable as per your regular tax slab.

Anyone looking for safe investment options that provide fixed returns and tax benefits can invest in NSC. It offers complete capital protection and guaranteed returns. Thus, it is an ideal choice of investment for risk-averse investors. However, like other fixed-income schemes, NSC does not provide inflation-adjusted returns.The government of India launched the National Savings Certificate as a savings scheme for individuals. Hence, HUFs (Hindu Undivided Families) and trusts cannot invest in it. Additionally, NRIs cannot invest in NSC; it is open only for individual Indian citizens.

Now that you are aware of NSC's different aspects, you can consider investing in it; since it is a low-risk investment, it will lend balance to your portfolio. If your sole investment objective is safety, or if you are looking to diversify your investments in fixed returns instruments, NSC could be an ideal choice.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.