The post-tax return is low in NSC and they suit conservative investors who want to preserve the capital yet earn a higher rate than bank fixed deposits.
The interest rate seems to be coming down over the long term. And, if you want to lock your money into investments at the current rate for a period of 5 years, Post Office National Savings Certificates (NSC) may be a suitable investment option. As against bank fixed deposits which are currently offering around 5.5 per cent per annum for 5-year deposits, NSC is offering a higher rate of interest.
The interest rate will depend on the date on which you buy the NSC. For every 3 months i.e for each quarter, the government fixes the rate of interest. Currently, for the April to June 2021 quarter, the rate of interest for NSC is 6.8 per cent compounded annually but payable at maturity and is the same as that of the previous quarter i.e. January to March 2021.
For those who want to save tax on their investments over a five-year period, the 5-year tax-saving bank FDs and 5-year NSC are the options to consider. However, NSC offers a higher rate than tax-saving 5-year bank FDs and may be considered if one is ready to opt for cumulative interest on maturity.
NSC is a one-time investment and the lump sum invested is locked in for a period of 5 years. There is no interest payment on a monthly or annual basis to investors because the interest is accumulated and paid only on maturity along with the principal invested.
You can use the NSC calculator to find the maturity amount. The minimum investment in NSC is Rs 1000 which grows to Rs 1389.49 after 5 years. If you buy the NSC for Rs 1 lakh today, it will grow to about Rs 1.38 lakh after a period of 5 years or 60 months. And, the NSC maturity amount of Rs 10000 will be about Rs 13890 after 5 years.
There is no maximum limit of investing in NSC but tax benefit under Section 80 C is only up to Rs 1.5 lakh per financial year. If you buy the NSC for Rs 3 lakh today, it will grow to about Rs 4.17 lakh after a period of 5 years or 60 months. The interest income earned is fully taxable in the hands of the investor depending on the income slab.
NSC suits conservative investors who want to preserve the capital as the post-tax return is low in them.