National Savings Certificate (NSC) is a government-backed fixed-income investment scheme. This scheme encourages small and middle-class investors to invest and, at the same time, save on the income tax under section 80C. It is a saving scheme that you can easily open at any post office. Earlier, the banks and post offices used to issue physically pre-printed NSCs. But now, these are recorded electronically, or in a passbook. You can also purchase NSCs from all public sector banks and the top three private sector banks.
However, a fixed deposit is an ideal investment option for many individuals because of its security and higher returns. FD is not dependent on market fluctuations; hence, it becomes the most reliable option for low risk and offers assured returns.
What is a Fixed Deposit?
A Fixed Deposit is a type of savings scheme offered by banks and financial institutions. It involves depositing a sum of money for a fixed period of time, ranging from a few days to several years. In return, the depositor earns interest on the deposited amount at a pre-determined rate. The interest rate on fixed deposits is generally higher compared to regular savings accounts. The principal amount and interest earned are paid back to the depositor at the end of the fixed period. Fixed deposits are considered low-risk investments as they offer guaranteed returns.
National Savings Certificates vs Fixed Deposits
Consider the following parameters to decide which is the better investment option:
1. Term
National Savings Certificate demands you to invest a minimum of Rs. 1,000 for a fixed tenure of 5 years. There is no upper limit for investment, but a lock-in period of 5 years for every investment you make in NSCs. You can invest once with a lump sum amount or monthly, like a Systematic Investment Plan (SIP) in NSC.
Alternatively, fixed deposits offer flexible tenures that ranges from a minimum of 12 months to a maximum of 60 months. Just like NSC, FD also has two types of investment options. You can deposit a fixed sum for a specific period with Bajaj Finance Fixed Deposit. Bajaj Finance also offers a Systematic Deposit Plan (SDP) which allows you to invest regularly over a specific tenure. This plan offers you to earn interest upon maturity or regular payouts.
2. Interest rate
You can avail a fix return of 7.7% p.a.*(as of 01/01/2024) on purchasing NSCs. NSCs have no maximum limit on investments. But there is a limit on tax-free income of up to Rs. 1,50,000 per year under section 80C. This means that interest earned on an investment over Rs. 1.5 lakh is taxable.
While both banks and NBFCs offer fixed deposits, the bank FD offers significantly less interest, and the latter provides a much higher interest rate. Institutions like Bajaj Finance offer maximum interest of up to 8.85% p.a., which is even higher than NSCs.
Click here to calculate your returns on FD using FD calculator.
3. Investment security
Security is the most crucial factor when it comes to investments. You should always ensure that your deposits are secure and give assured returns.
This scheme guarantees complete protection of your funds and provides fixed returns just like the other option—Public Provident Fund, Bonds etc. However, the Indian Government has promoted National Savings Certificate only for Indian individual citizens. As a result, the government exempts the below mentioned from investing in NSCs:
- Hindu Undivided Families (HUFs)
- Trusts
- Private and public limited companies
- Non-Resident Indians (NRIs)
With institutions like Bajaj Finance having the highest credit ratings - CRISIL AAA/STABLE and [ICRA]AAA(Stable) - you can start your fixed deposit confidently. The risk decreases with an increasing credit rating as they guarantee the maximum level of security of your money.
Difference Between NSC and FD
Parameter |
NSC |
FD |
Liquidity |
NSC can be used as collateral against loans. |
Through the FD you can take loan for up to 75% of your FD amount. |
Interest Rate |
7.7.% p.a. (as of 01/01/2024) |
Up to 8.85% p.a. |
Compounding Frequency |
The interest earned is compounded annually. |
The interest in FD is generally compounded quarterly. |
TDS |
It is not applicable. |
TDS is deducted at 10% on the interest earned. |
Benefits of a Fixed Deposit
- Stability: Fixed deposits provide a stable and secure investment environment, safeguarding the principal amount.
- Assured returns: Investors receive fixed interest rates throughout the deposit tenure, ensuring a guaranteed return on investment.
- Flexible tenure: Some Financials institutions like Bajaj Finance offers flexibility in choosing the investment tenure on their Fixed Deposit, allowing investors to align with their financial goals with the deposit period.
- Risk-free: Fixed deposits carry minimal risk, making them a safer option compared to market-linked investments.
- Compounding option: Interest can be compounded in fixed deposits, allowing investors to earn interest on both the principal and accumulated interest, leading to increased returns over time.
Benefits of an NSC Scheme
- Safety: NSC schemes are backed by the government, ensuring a secure and reliable investment option.
- Tax benefits: NSC investments offer tax benefits under Section 80C of the Income Tax Act, helping in tax saving.
- Easy accessibility: NSCs are easily accessible through post offices, making them widely available to investors.
- Market fluctuations: The returns are not affected by market fluctuations, ensuring stability in earnings.
Calculate your expected investment returns with the help of our investment calculators
Investment Calculator |
|||||
