When Markets Turn Volatile, Think of NSC, for Assurance

Guaranteed returns and tax benefits keep small savings schemes the best safety net for investments

When Markets Turn Volatile, Think of NSC, for Assurance
When Markets Turn Volatile, Think of NSC, for Assurance
Titlee Sen - 02 June 2021

With volatility being the order of the day in the markets, individual investors are often puzzled about where to put their money. This is where one turns to the good-old savings instruments from the government’s coffers.

The National Savings Certificate, known popularly as NSC, is a fixed-income investment that comes within the Small Savings Scheme of the federal government. The NSC was launched as a safe and low-risk investment for small and middle-income individuals.

What Makes NSC a Safe Bet?

NSC is a secure alternative for cautious investors, thanks to the sovereign guarantee that comes bundled with every certificate. There is no chance of default because it is backed by the government. To top it all, NSC offers tax benefit under Section 80C of the Income Tax Act.

Not only do you get a tax break of up to Rs. 150,000 under Section 80C, you also need not pay any tax deducted at source (TDS). The NSC investments qualify for an annual exemption of up to Rs 1.5 lakh. The interest earned on this investment can also be deducted from your tax bill, up to a maximum of Rs 1.5 lakh each year. NSC is a useful solution for investors looking for low-risk, guaranteed returns, and tax-saving products.

What Are the Current Interest Rates

Within short-term investments, the three-year post office term deposits attract 5.5 per cent and 6.7 per cent for four-year investments. The interest rate of National Savings Scheme is 6.8 per cent as of the fourth quarter of 2020-21 and it is compounded annually. Public Provident Fund, a long-term investment, provides a rate of 7.1 per cent with no tax payable.

The rate of interest on NSC, KVP, term deposits, and Senior Citizen Savings Schemes (SCSS) is fixed until maturity. PPF and Sukanya Samriddhi Yojana (SSY) investors, on the other hand, would see a rate change since the government adjusts the rate at the end of each quarter of the fiscal year.

Understanding NSC

Any Indian citizen can buy National Savings Certificates singly or jointly or on behalf of a minor. This programme is not available to non-resident Indians, Hindu undivided families or trusts. The smallest amount you may invest in NSC is Rs 100 and there is no maximum amount you may invest. Because there is no online option for investing in NSC, you will have to go to your local post office to do it. The NSC has a five-year term and pays interest at a rate of 6.8 per cent annually. While the interest is compounded annually, it is only paid to the investor at the end of the term. That is, if you invest Rs 100 today, you will collect rupees 138.95 after five years.

NSC is an acceptable option for older individuals who want a low-risk, guaranteed return investment, while also saving money on taxes. Housewives with some savings can deposit it in the NSC and begin their investing path. Young people should not be just concerned with equity. Because of the five-year term, investing in NSC helps them grasp fixed income products and build investment discipline.