National Savings Certificate (NSC): Assured return investment

National Savings Certificate (NSC) is a fixed interest long term instrument for investment. NSCs are issued by Department of Post, Government of India.

Features:

• Rate of interest: 8% per annum, compounded half yearly. Thus effective annual interest rate is 8.16%.
• Maturity: 6 years
• Minimum investment: Rs.100
• Maximum investment: No limit.
• Can be pledged as a security for availing a loan
• Denominations - Rs.100, Rs.500, Rs.1000, Rs.5000 and Rs.10000
• Available at all post offices

Pros:

• Return is guaranteed and virtually risk free; backed by Government of India
• Return is fixed, interest rate gets locked once investment is made. Hence investments are insulated from any subsequent change in rates. For example, on March 2003 interest rate was reduced to 8% from 9.0%. But any investment made till Feb 2003 continued getting 9.0% return.
• Tax Saving instrument - investment made falls under Section 80C.

Cons:

• Interest income is taxable as per the tax slab of the individual
• Limited liquidity; premature withdrawals are permitted only under specific circumstances like death of holder(s), forfeiture by the pledgee or under court's order.
• Capital appreciation after adjusting tax on interest and inflation is minimal or negative.

When to invest:

• One time surplus money
• For needs arising at corresponding timeframe.