National Savings Certificate

The number of investment schemes for Indian investors keeps increasing daily. Different banks and NBFCs (Non-Banking Financial Companies) keep developing new investment options to capture market share. The vast availability allows Indian investors to choose an investment option per their financial requirements and goals.

National Savings Certificate, also known as NSC, is a reliable Indian Post-Office savings product that is quite popular among investors. As a low-risk investment option, the NSC certificate comes with many benefits.

What is a National Savings Certificate?

The National Saving Certificate or NSC is a fixed-income savings scheme that an individual can open with any Indian post office branch. It is a low-risk investment but the best saving plan option offered by the Government of India that encourages budding investors and people with small to medium incomes to invest and grow their wealth.

NSC has a fixed maturity period of five years. There is no upper limit on purchasing the National Saving Certificate Scheme, but an individual can claim tax benefits only on investments of up to ₹1.5 lakhs. The tax benefits on the investment in NSC are subject to deduction under Section 80C of the Income Tax Act.

When an individual invests in the National Saving Certificate Scheme, he can receive proceeds at a fixed interest rate, which the Government of India decides. The interest rate on the National Saving Certificate Scheme is 7.7% per annum. However, the government regularly revises this rate.

Top Features and Benefits of the National Saving Certificate

The National Saving Certificate comes with several benefits for investors. Liquidity is of great value to an individual with a medium or low income. The benefits and features of the National Saving Certificate allow such investors to access their money at all times.

Top benefits of Investment in a National Saving Certificate:

Guaranteed Return (Fixed Income)

Investment in the National Saving Certificate Scheme helps generate fixed income through interest on the sum invested. For example, an individual can generate a guaranteed return on the NSC at a rate of 6.8% through the government’s regularized interest rate on the National Savings Scheme.

So, if you have ₹1 lakh in the NSC, you will receive a sum of ₹6,800 per annum as interest on your National Savings Certificate.

Tax Benefit on NSC

When you invest money on the National Saving Certificate, you can claim tax benefits on investments of up to ₹1.5 lakhs. The claims are subject to Section 80C of the Income Tax Act, 1961. This is a great way to save money for those with medium to low income or youngsters who have just started savings.

Small Investment Option

An individual can start investing in the National Saving Certificate Scheme with a small initial investment of ₹1,000 or any amount above that is a multiple of ₹100. After that, they can increase their investment amount when feasible.

Maturity Period

The National Saving Certificate has a mid-term maturity period of five years.

Compounding Benefits

The interest rate on the National Saving Certificate Scheme allows an investor to get regular returns. The better part is that the interest earned on the NSC gets auto-compounded and re-invested yearly.

Tax Benefits of NSC Investments

Subscribing to the NSC with an investment of up to ₹1.5 lakhs can result in tax savings under Section 80C. The interest received on the certificates is added to the initial investment and comes under tax deduction.

For example, if you purchase ₹1,000 in certificates, you are eligible for a tax credit on that original investment amount in the first year. However, in the second year, you can claim a tax deduction for the NSC investment(s) and the interest received in the first year. Because interest is added to the original investment and compounded annually, this is the case.

Best Alternatives for National Savings Certificate

Although the National Saving Certificate Scheme is a reliable and safe savings scheme that the government backs, it is also a great investment option for low-risk investors, which makes it a good option for diversifying your portfolio. However, if you are a high-risk investor, there are a few others that you can explore. Some of these options might pose a little more risk but are worth considering for your financial growth in the long term.

Unit Linked Insurance Plans (ULIPs)

ULIPs are modern investment tools with dual insurance benefits and investments in the same plan. They allow the policyholder to invest in a market-linked security based on their risk appetite. For example, a policyholder can opt for safer investment options like bonds if they have a low-risk appetite.

Guaranteed Savings Plan

If you are looking for more options for the National Savings Scheme, you can consider the guaranteed savings plan option. In this plan, you must ensure that you invest a fixed amount every month or year for a fixed term. After this fixed term, you will get returns pre-decided at the start of the policy.

How to Invest in NSC?

National Savings Certificate, or NSC, is designed to encourage small—to mid-income investors to invest while saving on taxes. It is a secure and low-risk investment option with a fixed interest rate and a five-year lock-in period. Let us see how to invest in NSC, both offline and online:

Steps to Invest in NSC Offline

Visit a Post Office

Head to the nearest post office that offers NSC investments. Almost all major post offices across India provide this facility.

Fill the Application Form

Obtain the NSC application form from the post office. Fill in all required details, such as your name, address, PAN number, and the amount you wish to invest.

Provide Required Documents

Submit the filled application form and necessary documents for compliance with KYC (Know Your Customer). This typically includes:

• Proof of Identity (Aadhaar card, Passport, Voter ID, etc.)
• Proof of Address (Utility bills, rental agreement, etc.)
• Passport-size photographs

Choose Nominee

Nomination is mandatory for NSC investments. Ensure you fill out the nominee details on the application form.

Make Payment

Pay the investment amount. You can make payments via cash, cheque, or demand draft. The post office will issue an acknowledgment receipt upon receiving the payment.

Receive NSC Certificate

After processing your application and payment, the post office will issue an NSC certificate in your name. Keep this certificate safe as it will be required at maturity.

Steps to Apply for NSC Online

Log in to Your Internet Banking Account

Access your Internet banking account of a bank that offers NSC investment services. Ensure your bank is authorized to provide this service.

Navigate to the NSC Investment Section

Once logged in, look for the option related to government schemes or fixed-income investments. Under this, find the NSC investment option.

Fill in Investment Details

Enter the investment amount and nominee details. The online form will require details like the offline process, including personal and nominee information.

Upload Documents

Upload scanned copies of the required KYC documents. These may include:

• Proof of Identity
• Proof of Address
• PAN card

Make Payment

Proceed to make the payment online through your Internet banking account. Ensure you have sufficient balance to complete the transaction.

Confirmation and Receipt

After completing the payment, you will receive an online confirmation. The NSC certificate will be issued digitally and can be downloaded from your internet banking account. Additionally, an email confirmation might be sent to your registered email address.

What Documents are Required to Apply?

Previously, physical NSC certificates were issued by banks or post offices. However, this practice was discontinued in 2016. Now, NSC certificates can be purchased in either Passbook or electronic mode (e-mode).

The passbook mode is less popular and more tedious. You must open a savings account at an authorized bank or post office. In contrast, e-mode is more convenient. You can purchase an NSC scheme with your savings account online, provided you have activated your Internet banking. You will require the following documents to apply for NSC:

• ID proof, such as a PAN number, passport, senior citizen ID, driver’s license, or any other identification provided by the government
• Your photograph.
• Proof of residence, such as passport, phone bill, electricity bill, or bank statement.

Comparing NSC with Other Tax-saving Investments

Regarding tax-saving investments, the National Savings Certificate (NSC) is one option among several others. Let’s compare NSC with some popular tax-saving investments available in the market.

Public Provident Fund (PPF)

PPF is a long-term investment plan with a long maturity period. The interest rate is variable and compounded annually, offering higher flexibility regarding investments and withdrawals. While the NSC is a fixed-income instrument with a maturity period, the NSC interest rate is fixed and compounded annually.

Equity-Linked Saving Scheme (ELSS)

ELSS is a type of mutual tax-saving fund that is primarily financed in equities. It has the potential for higher returns but also carries higher market risk. On the other hand, NSC is a risk-free investment with a fixed interest rate. It does not offer any exposure to equity markets.

Tax-Saving Fixed Deposits (FDs)

Tax-saving FDs are offered by banks for a fixed tenure. The interest earned is taxable. They provide fixed returns and are relatively safer. NSC is issued by the government and is considered a safe investment. For NSC, interest earned is compounded annually, but TDS is not applicable.

Unit Linked Insurance Plans (ULIPs)

ULIPs are life insurance-cum-investment plans. They offer market-linked returns and life insurance coverage. On the other hand, NSC is a savings instrument and does not provide life insurance coverage.

Employee Provident Fund (EPF)

EPF is a retirement scheme for salaried individuals. It offers tax benefits and employer contributions. On the other hand, NSC is open to all individuals and is not tied to employment.

Who Should Invest in a National Saving Certificate?

NSC offers guaranteed interest and complete capital protection, just like Public Provident Funds, Mutual funds, and Post office FDs. Thus, The National Saving scheme is for Indian Individual Citizens. As an investor, you can consider:

• Fixed income at regular intervals - quarterly, annually, or monthly
• Guaranteed interest rate
• Low rate
• Tax Saving

Diversifying your portfolio is a wise thing to do for every investor, low-risk or high-risk alike. NSC is one of the best ways to help you diversify your portfolio for optimized returns. Additionally, if you know your requirements and plan well, you can get good returns over time. From ULIP to Guaranteed Savings Plan to National Savings Certificate, you must invest in plans that help you beat inflation, ensure liquidity, and still give you good returns.

Eligibility Criteria to Invest in National Saving Certificate

Like a savings plan, the National Savings Scheme also has eligibility criteria. The eligibility criteria to invest in the National Saving Certificate Scheme are as follows:

• One must have Indian citizenship.
• Individual adults or a joint group of 3 adults can invest.
• Guardians can invest on behalf of the minor child/children or for a person of unsound mind.
• Minors above the age of 10 years can invest in their name.

How to Request a Duplicate National Savings Certificate?

You can request a duplicate if your original NSC certificate is damaged, lost, stolen, destroyed, or mutilated. To do so, you must fill out the savings certificates form and give it to the post office where the original NSC was issued.

The form’s primary fields are as follows:

• The certificate(s)’ serial numbers, denominations, NSC issue, and other details.
• The date on which the certificates were purchased.
• The purpose of requesting a duplicate certificate must be stated, along with any additional information.

What is the Maturity Period and Premature Withdrawal Rules for NSC?

Although the National Savings Certificate scheme has a lock-in period of 5 years, premature withdrawal is permitted under certain conditions:

• If the NSC holder or holders (in the case of joint holders) pass away.
• If there is a court order mandating the withdrawal.
• If a Gazetted Government Officer pledges the account to be forfeited, and the pledge complies with NSC rules.

If the NSC is withdrawn within one year of opening the account, no interest will be paid, and only the initial investment amount will be returned. However, if the withdrawal is made after one year, the principal amount and the accrued interest will be paid.

Key Takeaways

• NSC is a low-risk investment option offered by the Government of India.
• It offers guaranteed interest and tax benefits under Section 80C of the Income Tax Act.
• The interest earned on NSC is taxable but exempt from Dividend Distribution Tax (DDT).
• It can be purchased in either passbook or electronic mode (e-mode).
• It is a good option for diversifying your portfolio and for those who are looking for a safe investment with guaranteed returns.

Conclusion

NSC suits Indian citizens seeking fixed income at regular intervals, guaranteed interest rates, and tax savings. It offers a safe investment option with capital protection. By diversifying their portfolios and considering their specific financial requirements and goals, investors can make informed decisions to optimize their returns over time.

Remember, it’s always advisable to consult a financial expert before making decisions to ensure they align with your financial circumstances and goals.

FAQs on National Savings Certificate