Tax Season Special: National Savings Certificates or NSC

How to invest in NSC?
NSCs are available at the local post office. Like bank fixed deposits, you can buy NSCs as and when you desire and at any post office in India.

Investment Limits
The minimum amount for NSC is Rs 1,000. There is no upper limit. For amounts greater than or equal to Rs. 50,000, PAN number is required. Of course, investment exemption can be claimed only for investing Rs. 1 lakh.

Lock in Period
An NSC matures in 6 years. After 3 years, some conditional withdrawals are permitted, but the tax penalty will eat away the returns earned during this time. The NSCs can also be pledged ad collaterals while taking loans.

Return on investment
The interest rate offered by PPF is 8%, compounded bi-annually. The interest earned on NSC is taxable.

Smart Saver's Verdict
Before the last rise in interest rates (I am talking of the time in early 2006, before the rates started climbing. Now of course, we are witnessing a descent), NSC was an attractive fixed return investment because of its low lock in period, compared to PPF whose lock in was 15 years. At that time, NSC's rate of return at 8% bi-annually was better than a bank fixed deposit running for an equivalent time frame.

Today, the verdict is in favor of tax saving fixed deposits that have a lock in period of 3 years and equivalent (if not better) interest rates; and hence score over NSCs.