Investment of your hard-earned money is something that is not taken lightly. While making any investment, we do not just measure the profitability and return on investment; many other things are considered to come to a decision in making such an investment- things like security, reliability, scope of returns, interest rates, etc. A world where financial stability has become very difficult to attain demands much more exploration of stable and reliable sources of investments.
In this scenario, the National Savings Certificate becomes the most stable option in the field of various investment instruments being offered. National Savings Certificates offer safe and profitable schemes for low-investment individuals. With the extensive accessibility offered through numerous post offices throughout the country, NSCs offer an opportunity for growing savings that further contributes to the development of the nation's finance.
What is National Savings Certificate (NSC)?
The NSC, or National Savings Certificate, is an investment vehicle sponsored by the government that earns returns and saves tax. Hence, this investment plan is capable of attracting any investor considering the low amount of at least a minimum requirement for beginning.
Usually selected by risk-averse investors or those looking to diversify their portfolio using fixed return instruments, NSC is a low-risk government of Indian-backed investment.
NSCs provide fixed returns, so conservative investors look to get low-risk investment options for shorter durations. Adding NSCs to their portfolios, the investor can stabilize with diversification; it balances higher-risk investments with the secure returns from NSCs, thereby lowering overall risk while pursuing long-term financial goals like retirement planning or funding education.
This plan accommodates subscribers with small to middle-level incomes with low investment and is thus excluded from parties like non-resident Indians and Hindu Undivided Families (HUF).
Advantages and Features of Investment in NSCs
You can purchase National Savings Certificates from any Indian Post Office. It has a fixed maturity date of 5 years. This scheme is also considered tax saving by the government. Section 80C under Income Tax Act, 1961 has been saved up to Rs.1.5 lakh.
Though the minimal investment amount starts from Rs.1,000 (or multiples of Rs.100), one can enhance the investment amount once possible.
Major banks and NBFCs accept National Savings Certificates as collateral or security against secured loans.
As the interest on such investment is compounded automatically to be reinvested by default, the investors can nominate any family member, minors included, as his beneficiary in case of sudden demise.
Banks and NBFCs accept NSC as collateral for secured loans as the postmaster transfer stamp on the certificate allows smooth transfer to the bank.
Purchased from any post office, with the submission of required KYC documents, and easy transfer between post offices or individuals does not affect the accrual or maturity of the original certificate.
Benefits of NSC
Here are the primary benefits of investing in the NSC:
The major advantage that the investment in the NSC scheme has for an investor is that they can earn tax benefits on the amount of investment made. Even the returns are guaranteed under the scheme. The majority of people opt for this scheme since they can ensure a fixed income after they retire.
All the interest accrued except that in the final year is tax-free.
A duplicate certificate may be demanded in case the original is lost.
When the matured period of the fund is over, the same investor can reinvest in a scheme.
Certificate can also be transferred to one investor by another; however, transfer is made permissible only once in the duration of the lock-in period only.
The interest generated is compounded annually and reinvested towards the scheme. Therefore, the individual's investment grows without having to buy any certificates.
How to Determine the NSC Interest Rate?
Investors look for an investment instrument that fetches high returns with no risks whatsoever, and NSC has fulfilled that requirement. For a decent return on interest rate, it becomes a sound investment instrument in terms of short-to-medium-term returns, so the low- and medium-income customers also prefer it so as to raise their savings significantly with no risk involved.
Another feature that makes NSC a handsome investment for investors is tax benefit. The return is calculated either manually or via a calculator. Interest credited on the NSC compounds yearly, which is at the end of the five-year term.
The total income consists of reinvestment of all yearly interest. It computes an estimated maturity value with the amount invested and prevailing interest rates through allowing the user to give both. This puts clearly forward the returns from this investment sector.
NSC Interest Rate
The NSC offers a flat rate of 7.7% for the April to June 2023 quarter, compounded yearly and interest payable only at maturity. As per the practice, it is the Government of India which sets and reconstitutes the interest rate every quarter. The automatically reinvested interest earned leave the returns far below that of the inflationary rate. With fixed interest rate in every period, the investor can anticipate returns along with maturity value from an investment made in the NSC well before.
How to Calculate the Maturity Amount of the NSC?
The interest generated from the amount invested in NSC is compounded over years till maturity. Hence, this investment on NSC can be calculated using the compound interest formula. The formula to calculate maturity amount at the end in NSC is:-
A = P (1 + r/100) n
Where,
A = Value of Maturity
P = amount of principal invested
r = Interest rate given
n = years, i.e. no of years till maturity
Now, use the formula in an example to understand better:
You invest Rs 10 lakhs on a 5-year National Savings Certificate that carries an interest rate of 6.8%. By maturity time, which is the end of 5 years, you would have accumulated interest of Rs 3,89,493 and a maturity amount of Rs 13,89,493. In the case of hand processing, NSC returns or maturity value computation can be quite cumbersome and time-consuming. Estimating NSC investment returns can make it time saving and efficient to compute an NSC interest rate calculator.
Conclusion
It is clear that NSCs stand as a milestone of prudent finance. Their safety net, compounded returns, and tax benefits make them not only an investment route but a means of encouraging saving habits in the disciplined manner. Adding NSCs to your portfolio will safeguard your financial future and, at the same time, add to the nation's economic development.
