13 Apr 2014

National Savings Certificates - NSC Bonds

When we think of investments, we think of big banks and investment companies. Today, there are lots of advertisements that attract us towards private set ups. Amidst all this marketing, we forget that our good old post office has many schemes available. One such sceme is called the National Savings Certificate commonly referred to as NSC bonds.

What is the National Savings Certificate?

It is a scheme offered by the post office wherein your money is locked for a period of five years or ten years. The details are :
1. Interest is compounded annually @ 8.5% (5 year period) or @ 8.8% (10 year period)

2. Any individual can invest. Trusts and HUF's cannot.

3. Investment is tax deductible under Section 80C up to a maximum of Rs.1,00,000.

4. There is no tax deducted at source. However, interest is not tax free. Interest is taxed at the slab you fall under.

5. The certificates can be kept as collateral to avail of a loan.

6. Premature withdrawal is not allowed  except in extreme cases e.g. death of the individual.

NSC vs. Fixed Deposit.
1. Fixed deposit will be for the tenure you opt for. The duration range is between 7 days and 3 years.  NSC has two options - 5 years or 10 year duration.

2. Most fixed deposits do not have a deduction under 80C unless you specifically opt for a tax saving FD.

3.  Premature withdrawal in case of an FD is possible after paying the penalty levied. Tax saving FD's usually do not offer a premature withdrawal.

4. Principal is safe in both products.


1. NSC has a lock in period of 5 or 10 years depending on the option you choose. PPF is locked in for 15 years.

2. Premature withdrawal of NSC is not possible. Money can be withdrawn from the PPF from the end of the sixth year onwards. Withdrawal cannot exceed 50% of the balance at the end of the fourth year.

3. Interest on NSC is not tax free, interest on PPF is!

4. Principal is safe in both products.

5. You can avail of a deduction under 80C in both cases.

Should I invest in NSC's?
The answer really depends on your situation. I have said this before. PPF is a must for every individual. If you desire more of a deduction under 80 C, NSC is a good option to add to your portfolio. Between tax saving FDs' and NSCs', the decision lies on the interest rate, penalty levied and the convenience of investing in a scheme. If an FD gives you a higher interest rate compared to NSC, it is worth looking into. You should also look at the withdrawal option. If this is money you want to stash away and forget about it, then NSC is a good product since premature withdrawal is not possible.

The post office offers many good schemes. Not to say that you should invest in all of them, but please do not forget to consider them as one of your alternatives. The final decision to invest should be made by weighing all the options.

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