National Savings Certificate

Saving options are designed to fulfill the needs of investors and include some of the features, like tax benefits, good interest rates, safety etc. Some of the most common fixed-income securities include the NSC(National Savings Certificate), PPF(Public Provident Fund) etc.

Today, in this article, we’ll talk only about the National Savings Scheme (NSC), A Government of India initiative. The inception of the National Savings Certificate (NSC) dates back to the 1950s when it was issued by the government to collect funds for nation-building.

What is a National Savings Certificate?

National Savings Certificate (NSC) is a fixed-income investment scheme issued by the post office for small savings and for income tax savings in India and can be taken from any branch of the Indian postal office.

This is usually preferred by investors who are unwilling to take risks or people who wish to expand their base by a fixed return initiative, to invest while saving on income tax under Section 80C.

You can invest in NSC from the nearest post office in your name, for a minor, or with another adult as a joint account. NSC comes with a fixed maturity period of 5 years and can also be kept as collateral with the banks for availing loans.

The interest rate on 5-year NSC is at par with that of other Fixed Income instruments like PPF.

The interest on NSC is declared by the government each year before 1^st April, and it is compounded yearly w.e.f. 1^st April 2016.

Features & Benefits of NSC:-

Some of the significant features of National Savings Certificate are –

• Rate of Interest : The certificates provides an annual fixed interest currently which is 7.7% compounded annually but payable at maturity. Interest rates are revised every quarter by the government, ensuring regular income for the investors.
• Safe Scheme : NSC is backed by the government of India, which makes it a safe and secure investment options especially for small investors.
• Maturity Period : The scheme has a 5 year tenure. At the end of the maturity period, the certificate holder receives the principal amount along with the accumulated interest.
• Tax Benefit: As a government-backed tax-saving scheme, the amount invested in NSC qualifies for tax deduction under sec 80C of the Income Tax Act up to specified limit(Rs. 1.5 lakhs annually).
• Investment Flexibility : In NSC Minimum investment to be made is Rs. 100 and there is no maximum limit to be invested.
• Accessible: NSC can be easily purchased from from any post office across India on submission of required KYC documents.
• Loan Collateral’s: NSC certificates can be used as collateral or security to avail secured loans in Banks and NBFCs.
• Power of Compounding:  The interest earned on NSC gets compounded annually and is reinvested which is payable only at maturity.
• Nomination: The investor can nominate any family member (even a minor) so that they can inherit it in the case of an unfortunate event of the certificate holder’s death.
• Corpus on Maturity: The investor will receive the entire corpus value on maturity. As there is no TDS on NSC payouts, the subscriber should pay the applicable tax on it while filing his Income tax returns or paying his advance tax.
• Premature Withdrawal: Generally, one cannot withdraw the investments early except on the death of the certificate holder, on a court order, or forfeiture by a pledgee.

Who Should Invest in NSC?

Investors who wants guaranteed interest and complete capital protection, just like some other fixed income instruments – PPF(Public Provident Fund) and Post Office FDs. However, they cannot deliver inflation-beating returns like tax saving Mutual Funds and National Pension Systems.

Government has promoted the National Savings Certificate as a savings scheme for Indian individual citizens and since NSC is backed by the government of India, which makes it a safe and secure investment options especially for small investors.

Eligibility Criteria for NSC :-

• The individual must be an Indian citizen.
• This scheme is for individuals and restricts Hindu Undivided Families (HUFs), Trusts, Private and public limited companies to invest in NSC.
• Non-resident Indians (NRIs) are not eligible to invest in NSC.
• There is no age limit for individuals in order to purchase a certificate. However, in the case of a minor, an adult can issue a certificate on his behalf. Under these circumstances, the adult must be the legal guardian of the minor.

Documents Required for Investing in NSC?

In order to invest in an NSC(National Savings Certificate), you need to submit the following documents:

• The NSC application form.
• Investors to provide an Original identification proof such as:
  • Passport
  • Permanent Account Number (PAN Card)
  • Voter ID
  • Driving license
  • Senior Citizen ID, or Government ID for verification.
• Photograph.
• Address proof like an electricity bill, Passport, telephone bill, bank statement along with a cheque.

Advantages of Investing in NSC?

• Invested amount is tax exempted under section 80c of the Income tax Act.
• The interest earned is virtually tax-exempt, barring last year.
• Minimum investment starting from Rs 100 with no maximum limit.
• The interest earned gets compounded annually resulting in higher returns.
• Used as collateral for securing secured loans from banks.
• Low risk investment option.
• Availability at all post offices makes it an easy investment option.
• Can be taken on behalf of a minor.
• Highest return.

Disadvantages of Investing in NSC?

• NSC Does not offer a reinvestment option, so every time you decide to invest you would have to buy a new certificate .
• The interest rate offered is fixed and hence may not offer real returns if they fall below inflation.

Duplicate National Savings Certificates Issue :-

If your original NSC certificate is lost, stolen, destroyed, damaged, or mutilated, you can request a duplicates.

• Fill out Form NC-29 and submit it to the issuing post office or any nearby post office.
• The form would require your details along with the details of the original certificate/s issued.
• The reason for applying for duplicate NSC must be mentioned in the form.
• The original certificate would be required as proof of destruction and defacing. In case the original is not available, an indemnity bond will be required for certificates with a value higher than Rs. 500 that will either have a guarantee from the bank or are backed by securities.
• If the duplicate certificate is issued, then it is only redeemable at the issuing post office.

Difference between NSC, PPF and FD :-