National Savings Certificate (NSC): Features, Benefits, and More

In this article, we will discuss

National Savings Certificate (NSC): Features, Benefits, and More

In India, there are a myriad of government-backed savings schemes available. These investment options have a sovereign guarantee, meaning that there is little to no risk of default. Additionally, they also offer attractive returns and stable income. Including a few government-backed savings schemes in an investment portfolio could be a good way to diversify and lower risk.

In this article, we are going to explore one of the most popular investment schemes backed by the government of India, which is the National Savings Certificate (NSC). In addition to delving into the key aspects of this investment option, we will also look into some of its key features and benefits.

What is the National Savings Certificate (NSC)?

Introduced in 1989, the National Savings Certificate (NSC) is an investment scheme offered by India Post on behalf of the government of India. The investment option is aimed at encouraging long-term savings while offering attractive interest rates and tax benefits.

The NSC scheme prioritises capital preservation and guaranteed returns, making it a good investment option for individuals who are averse to risk. The scheme operates on a five-year investment cycle, during which the invested amount grows at a predefined interest rate.

Who Can Invest in the National Savings Certificate Scheme?

The National Savings Certificate (NSC) is only open for investment for resident Indian citizens over the age of 10. This essentially means that non-resident Indians (NRIs), even if they are citizens of India, cannot invest in this scheme.

Additionally, the NSC scheme also actively bars legal entities like trusts, partnership firms, Hindu Undivided Families (HUFs), private limited companies, and public limited companies from investing.

What are the Key Features of the National Savings Certificate Scheme?

The National Savings Certificate scheme comes with several distinctive features that make it an attractive investment option. Let us explore each of these features in detail.

  • Fixed Tenure

The NSC scheme has a fixed maturity period of five years. Since the tenure is fixed beforehand, investors can plan their finances better and make well-informed investment decisions. 

  • Guaranteed Returns

Since the investment scheme is backed by the government of India, the payment of interest and the principal investment amount on maturity are guaranteed.

  • Interest Rate

The NSC interest rate is set by the government of India for each tranche of the issue separately. Once the rate is set, it remains the same throughout the entire five-year tenure. This makes predicting returns a lot easier.

  • Compounding

The interest on NSC is compounded annually and paid out on maturity, along with the principal investment amount. By compounding the interest, the scheme allows for the growth of the invested amount over time.

  • Transferability

NSC certificates are transferable. Investors can submit Form 5 to the post office, where they hold their account, to transfer the certificate to another person. Additionally, investors can also transfer their NSC from one post office to another.

  • Nomination Facility

The NSC scheme offers a nomination facility, allowing investors to nominate a beneficiary for their investments. In the event of the investors’ demise, the appointed nominees can receive the maturity proceeds. Investors can appoint, cancel, or change their nominee at any point in time by filing Form 10 with the post office.

What are the Benefits of the National Savings Certificate Scheme?

Now that you are aware of the key features of the National Savings Certificate, let us now look at some of the advantages of this investment option.

  • Low Minimum Investment Limit

The minimum deposit amount in the NSC scheme is just Rs. 1,000, with the option to invest further in multiples of Rs. 100. This makes the investment option accessible to a wide range of investors.

  • No Maximum Investment Limit

Another major benefit of NSC is that there is no maximum limit on the amount that can be invested. This allows investors to park large sums of money without resorting to too much risk.

  • Accessibility

Investors can invest in the National Savings Certificate scheme by simply visiting the nearest post office branch with the necessary documents. This makes it one of the most accessible investment options in India.

  • Tax Benefits

One of the highlights of the NSC is the tax benefits that it offers. The amount you invest in the scheme can be claimed as a deduction from your total taxable income. The maximum amount you can claim is limited to Rs. 1.5 lakh in a financial year. Investing in the scheme can help you reduce your tax liability significantly.

  • No TDS

The interest amount from an NSC is exempt from TDS (Tax Deducted at Source). This essentially means that the interest that the investment earns through the five-year tenure is paid out to you fully without any tax deductions whatsoever.

  • Collateral Facility

NSC certificates can be used as collateral for obtaining loans from banks and financial institutions. This provides investors with a means to access funds in an emergency without having to prematurely withdraw their investment.

  • No Maximum Account Limit

The scheme does not limit the number of NSC accounts that can be opened by an eligible individual. An investor can choose to open any number of accounts in their name or along with other eligible individuals.

How is the Interest on the National Savings Certificate Scheme Calculated?

As you have seen already, the interest on the National Savings Certificate scheme is compounded annually. The formula used for calculating the maturity amount is as follows:

A = P x (1 + R)N

Here, A refers to the amount you receive from your NSC investment on maturity, P refers to the principal investment amount, R refers to the National Savings Certificate interest rate, and N refers to the tenure.

To calculate the interest that the investment generates, the following mathematical formula is used:

Interest = Maturity Amount - Principal Investment Amount

Now, let us use a hypothetical example to illustrate how the maturity amount and the interest are calculated.

Suppose an investor invests Rs. 2,00,000 in the scheme. The NSC interest rate is 7.7% per annum, whereas the tenure is fixed at five years. The amount the investor would receive on maturity would be as follows:

Maturity Amount = Rs. 2,89,807 [Rs. 2,00,000 x (1 + 0.077)5]

Meanwhile, the interest from the National Savings Certificate scheme would be as follows:

Interest = Rs. 89,807 (Rs. 2,89,807 - Rs. 2,00,000)

How to Invest in the National Savings Certificate Scheme?

There are two ways to invest in NSC: through the offline mode and the online mode. Let us first look at the steps you need to follow to buy a National Savings Certificate online.

  • Step 1: Register for a Department of Posts (DOP) internet banking account.
  • Step 2: Log into your DOP internet banking account using your user credentials.
  • Step 3: Navigate to the ‘General Services’ section and click on ‘Service Requests’.
  • Step 4: Select ‘New Requests’ and click on ‘NSC Account’.
  • Step 5: Enter the amount you wish to deposit and select the post office savings account from which you would like the principal investment amount to be debited.
  • Step 6: Read through the listed terms and conditions and accept them, if you are satisfied, to proceed.
  • Step 7: Enter your transaction password and click ‘Submit’ to create an NSC account.

You will receive a receipt acknowledging the deposit you made towards the NSC scheme. Download the receipt and store it safely. In the event of any issues, you may have to quote the acknowledgement receipt number. Once the NSC account is created, you can view it under the ‘Accounts’ section of your DOP internet banking portal.

Now that you know how to buy NSC bonds online, let us look at the process you need to follow to open an account offline.

  • Step 1: Visit any post office branch nearest to you.
  • Step 2: Request for Form 1, which is the form used for opening an NSC account. Alternatively, you can also download Form 1 from the India Post website and print it yourself.
  • Step 3: Fill out the form, making sure to enter all the relevant details carefully.
  • Step 4: Submit the filled-out Form 1 along with all the necessary KYC documents.
  • Step 5: Make the payment via cash, cheque, or demand draft using the pay-in slip in Form 2.

Once the payment is made and your application is verified, the NSC account will be opened and the certificates will be issued in your name.

Documents Required for Investing in the National Savings Certificate Scheme

Being aware of the list of documents you need to submit when opening a National Savings Certificate account can help speed up the process. Here is a quick overview of the documents you may be asked to submit by the post office.

  • A valid identity proof (PAN, Aadhaar, passport, driving licence, voter’s ID, or any other government identification)
  • A valid address proof (Aadhaar, passport, driving licence, voter’s ID, electricity bill, phone bill, or bank statement)
  • A recent passport-size photograph

Note: The documents listed above are merely illustrative. The post office may require you to submit additional documents when opening an NSC account.

National Savings Certificate: Pre-mature Withdrawal and Closure Rules

The NSC scheme is designed as a five-year investment option with no provisions for premature withdrawal or closure. However, early closure is permitted only under certain circumstances. Let us quickly look at what they are.

  • Death of the Certificate Holder

In the event of the investor's demise, the nominee or legal heir can close the account and claim the amount before maturity.

  • Forfeiture by Pledgee

If the National Savings Certificate was pledged by the investor and the repayment was not made on time, the pledgor (lender) can move to close the account prematurely and claim the amount.

  • Court Order

The NSC account can also be closed prematurely if it is ordered by a competent court of law.

Conclusion

The National Savings Certificate (NSC) is a reliable and beneficial investment option for investors looking for a balance between safety and returns. Benefits like a sovereign guarantee, stable and predictable returns, and tax benefits make it an attractive choice for conservative investors and those looking to diversify their investment portfolio. Now, although the scheme offers security and fixed returns, investors looking for higher growth potential may need to complement it with other high-growth investment avenues.

Disclaimer: INVESTMENT IN SECURITIES MARKET ARE SUBJECT TO MARKET RISKS, READ ALL THE RELATED DOCUMENTS CAREFULLY BEFORE INVESTING. The asset classes and securities quoted in the film are exemplary and are not recommendatory. SAMCO Securities Limited (Formerly known as Samruddhi Stock Brokers Limited): BSE: 935 | NSE: 12135 | MSEI- 31600 | SEBI Reg. No.: INZ000002535 | AMFI Reg. No. 120121 | Depository Participant: CDSL: IN-DP-CDSL-443-2008 CIN No.: U67120MH2004PLC146183 | SAMCO Commodities Limited (Formerly known as Samruddhi Tradecom India Limited) | MCX- 55190 | SEBI Reg. No.: INZ000013932 Registered Address: Samco Securities Limited, 1004 - A, 10th Floor, Naman Midtown - A Wing, Senapati Bapat Marg, Prabhadevi, Mumbai - 400 013, Maharashtra, India. For any complaints Email - grievances@samco.in Research Analysts -SEBI Reg.No.-INHO0O0005847

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