Are you on the lookout for a reliable investment avenue that provides stable returns while ensuring the safety of your hard-earned money? National Savings Certificates (NSCs) might just be the solution you've been searching for. In this article, we'll delve into the pros and cons of NSCs to help you decide if they align with your financial goals.

Pros of National Savings Certificates:

• Fixed and Assured Returns: NSCs offer a fixed rate of interest, providing investors with a predictable stream of income over time. It is backed by the Government of India. The assurance of the government backing makes them a safe investment option, ideal for conservative investors prioritizing capital preservation. This stability can be particularly appealing for individuals seeking a steady source of returns. Once you have invested in NSC, the interest rate remains fixed for the next five years. The current rate of interest is 7.7% per annum compounded annually.
• Tax Benefits: One of the significant advantages of investing in NSCs is the tax benefits they offer under Section 80C of the Income Tax Act. This is available in the old tax regime only. The principal investment is available as deduction while interest accrued can be claimed as deduction partly, helping investors reduce their tax liabilities. For the 1^st four years, the interest accrued can be shown as income from other sources and deduction u/s 80C can be claimed. The 5^th year interest is taxable as the NSC matures. Additionally, interest accrued on NSC is not subject to TDS.
• No Investment Limit: Unlike some other investment options, NSCs do not have a maximum investment limit. This flexibility allows investors to allocate funds according to their financial capabilities and goals. There is also no limit on the number of accounts one can open.
• Transferability: NSCs are transferable, enabling investors to transfer ownership of the certificates to another individual if needed. This feature adds to the versatility of NSCs as an investment instrument.

Cons of National Savings Certificates:

• Lock-in Period: NSCs have a mandatory lock-in period of five years, during which you cannot withdraw your funds. This lack of liquidity might not be suitable for individuals needing access to their investments in the short term.
• Limited Liquidity: While NSCs can be encashed prematurely under certain circumstances such as the death of the certificate holder, early withdrawals are discouraged and may result in penalties. Additionally, the loan facility against NSC certificates is not as flexible as other financing options.
• Tax regime: If you have selected the new tax regime, the tax benefits associated with NSC investments cannot be claimed. Since the latest amendment in the tax regimes, the new tax regimes have increased the basic exemption limit and offers lower tax rates when compared to the old tax regime. The old tax regime is only favourable if you have more deductions to claim. You can read more about old v/s new tax regimes and choose the best one for you by reading this blog.
• Alternative investments options: Tax savings FDs from banks may provide better returns depending on the bank and if you are a senior citizen. So, checking the alternatives is recommended. Tax savings FDs can provide the same 80C deduction but they do not have deduction on the interest. ELSS investments may offer better returns and also has a lower lock-in period of three years. ELSS investments are equity investments and carry market risk so you can invest if you are comfortable to deal with volatility during the investment tenure.

Conclusion:

National Savings Certificates offer a secure investment avenue with fixed returns and tax benefits, making them an attractive option for conservative investors. However, the lock-in period, tax regimes, alternative options, and limited liquidity might not suit everyone's financial requirements. Before investing in NSCs, individuals should assess their investment objectives, risk tolerance, and liquidity needs to make an informed decision. If you prioritize stability and tax efficiency in your investment portfolio, NSCs could be a valuable addition to your financial strategy.

Thank you for taking the time to read.

~Nischay Avichal