Why National Savings Certificate can be a good investment option in current scenario

The financial year is coming to a close and many would be planning to invest in tax-saving instruments. But it is a tricky situation for investors at this point. At one end, the stock market is at an all-time high making it risky to commit money into tax saving funds – equity linked saving scheme (ELSS) – as they are technically known.

On the other end, tax saving bank fixed deposits are offering low rate of interest. Also, after getting hit by the economic slowdown arising out of Covid-19 pandemic, investors may look for something that would not have long commitments for the future. So insurance policies, public provident fund accounts could also be less favoured.

Against this backdrop, National Savings Certificate (NSC) could emerge as an appropriate choice that provides features that serve one’s investment needs better. Here is why you should consider investing in it.

Safety of capital

The economy is yet to come out of the adverse impact of Covid-19. This is not the time to take credit risk. Since NSC is issued by India Post, it is backed by government guarantee. Your capital is completely safe. The money is going to come back to you at the end of five years for sure.

High Returns

NSC offers 6.8% rate of interest, compounded annually and payable at maturity. “Conservative investors who do not want to take risk can invest in NSC. The return provided by NSC is better than the PSU banks and private banks tax savings fixed deposit at this juncture. The PSU Banks offer tax savings fixed deposits ranging from 5.1% – 5.4% pa while private banks offer tax savings FD’s ranging from 5.5%-5.7%. The small finance banks, where is risk is comparatively high, are offering tax savings FD’s ranging from 6.50% – 7.25%,” S Sridharan, Founder, Wealth Ladder Direct said

In fact, no other five year instrument, barring senior citizen saving schemes (which offers 7.4% payable quarterly), pays you as high as 6.8% with sovereign guarantee.

Loan against NSC

Like most other tax saving instruments, the investments in NSC cannot be withdrawn before the five year tenure. However, the investors can pledge it to a bank or a lender and raise money against it. Since it is a fixed income instrument backed by sovereign, most banks and non-banking financial services companies lend against it. “You cannot encash NSC before its maturity but you can get a loan of up to 85% of the value,” Balwant Jain, Tax and Investment Expert said.

Tax efficient

Investment up to Rs 1.5 lakh in a financial year in a NSC fetches you deduction under Section 80C of the Income Tax Act. This makes the return mentioned above even more lucrative. Also, though the interest earned on the NSC is added to your income and taxed, you can claim deduction for the interest accrued amount under Section 80C.  “Your investment is eligible for tax deduction up to Rs 1.50 lakhs under section 80 C along with other eligible items. Interest accrued for first four years also is eligible for section 80 C,” Jain said.

Conservative investors looking for peace of mind and tax deduction along with good returns will find NSC an attractive investment option.