National Savings Certificates for Wealth Addition

National Savings Certificates are instruments of investment that are offered by the government of India for those who wish to compound their savings without having to face a greater risk factor that is normally associated with other forms of investment. Additionally, NSCs offer a sizably higher rate of interest that rival the offerings from many fixed deposit schemes from banks. There’s an inherent tax saving feature along with investments in NSCs. In the following few paragraphs, we would be dealing with how this brilliant instrument of investment can be used.

NSCs – Then and Now

Earlier, National Savings Certificates used to be offered only on a lock-in term of six years. This form of the NSCs didn’t have any option of pay out during the term of the investment and the funds in the account compounded on a half-yearly basis. Quite a unique system of investing that operated more as a very rigid fixed deposit account and less as conventional bonds and term deposits.

Now, NSCs have undergone some aspects of change. There are two terms of investment available, one for a 5 year term and another for 10 years. Additionally, now there are two rates of interest available, namely 8.6% per annum for the five-year investment and 8.9% per annum for the ten-year investment. These two changes are basically the ways in which National Savings Certificates have been modified. The rate of interest for both terms of investment stay locked, irrespective of the changes in the fiscal state of the nation. This presents a really lucrative way for someone to build a corpus over a relatively lesser period of time.

Saving on Tax

Investments made through either term of NSC are allowed for having tax deductions as per Section 80C. As of the recent tax rules, a sum of INR 1.5 lakhs can be claimed for deduction as an investment in National Savings Certificates. Tax earned on the investment is reinvested and since it is not paid out, it also enjoys tax exemption. Thus, both the principal investment as well as interest of year on year enjoy tax benefits.

National Savings Certificates are good instruments of investment for people who are not comfortable with riskier investments of the stock markets, commodities and mutual funds. Also, people who wish their funds to be compounded over the investment period can opt for the NSC option without having any sort of liquidity option.