FD vs NSC

When it comes to investing your hard-earned money, traditional avenues are a preferred lot. They not only offer safety in terms of low risk associated with them but also are more secure than other market-linked instruments. While a majority of people invest in them over the years, most information on even a basic Fixed Deposit like the one available on Finserv MARKETS or the National Savings Certificate (NSC) is still unclear. This may lead to confusion between the two when it comes to investing your savings. Both of these may seem like similar saving plans, however, they have some differences which should not be overlooked before you decide which one is right for you as an investor.

What is an FD?

Simply speaking, when you invest a fixed amount of money for a certain period of time and correspondingly earn interest on it, it is referred to as a Fixed Deposit or FD. Opening an FD on Finserv MARKETS is easy since you can do it online in a few minutes. Not only this, it comes with attractive interest rates of upto 8.7 percent. Since the money invested in fixed deposits is free from market fluctuations, they have been quite popular as a saving option.

Types of FD

Fixed deposit can be of two types depending on the interest payout mechanism. In a non-cumulative FD, the principal amount is invested for a fixed tenure and interest is paid out on a monthly, quarterly or annual basis as per your instructions. This traditional plan is suitable for those looking for a regular income at fixed intervals such as senior citizens. In a cumulative FD, the principal amount is invested for the tenure of your choice, but is compounded quarterly and then reinvested alongside your principal.

Both these FDs are available on Finserv MARKETS and you can invest in either of them for a duration ranging from 6 months to 5 years. The longer the time period that you stay invested for, the higher the interest rate. While senior citizens get an interest rate of 0.35 percent over and above the prevailing interest rates, if you renew your deposit, you get an interest rate of 0.10 percent over and above your preceding deposit on your next FD.

Tax-saving FD

You can also invest in a tax-saving FD on Finserv MARKETS and grow your savings by more than 49 percent. In this FD, unlike the ones above, you get a tax deduction under Section 80C of the Income Tax Act, 1961 wherein you can claim a deduction of a maximum of Rs 1.5 lakhs. These FDs come with a lock-in-period of 5 years. However, the interest is taxable and no partial or premature withdrawal is allowed.

Benefits of FD

If you are looking for a low risk savings instrument, a fixed deposit is the right choice. It offers stable returns that are protected from higher risks associated with other investments in the market. Not only do you get attractive interest rates, flexible tenures, guaranteed returns and safety of your money, an FD also helps you grow your wealth steadily. You can make multiple deposits as well as take a loan against your FD if needed. FD available on Finserv MARKETS comes with stability ratings like CRISILs FAAA/stable rating and ICRA’s MAAA/stable ratings which insure that your money is never at risk.

What is a NSC?

National Savings Certificate is a fixed income investment scheme from the Government of India. It is a savings bond that you can open at the nearest post office and helps you invest while saving on income tax. It is targeted at small and mid-income subscribers but is popular amongst all. A secure and low-risk product it offers complete capital protection.

How to invest in a NSC?

A resident Indian can buy a NSC from a general or head post office in their name, a minor’s name or with another adult as a joint account. Your money is locked for a period of five years. There is no maximum limit on the amount of money that you can invest, however, investments upto Rs 1.5 lakhs will be eligible for tax deduction under Section 80C of the Income Tax Act, 1961. The certificates earn a fixed interest that is currently at the rate of 7.9 percent compounded annually. Certificates are available in denominations of Rs 100, Rs 500, Rs 1000, Rs 5000 and Rs 10,000.

Benefits of NSC

NSC gives you guaranteed returns as per the interest rate specified, as well as you can claim a tax deduction since it is a government-backed scheme. You can start small, by investing as low as Rs 100, to begin with and grow your savings. You can transfer NSCs across post offices, in case you move to a different city. You can also pledge your certificates as loans in case of an emergency. If you lose or misplace a NSC, you can obtain duplicate certificates by furnishing an indemnity bond. While interest income is taxable, no tax is deducted at source. What’s more, NSCs are encashable at any post office across India, provided one has obtained transfer rights.

Things to keep in mind when investing in NSC

  • In case of NSC, the interest is not paid each year to the investor, rather it accumulates.
  • The final or fifth year’s interest is not reinvested. So it cannot be claimed as a deduction under Section 80C.
  • Interest accrued yearly is reinvested on behalf of the investor and qualifies for deduction under Section 80C within the total limit of Rs 1.5 lakh.
  • The final year’s interest from NSC is added to the certificate holder’s income and taxed accordingly.
  • The interest rate on the NSC is revised every quarter as per prevailing government bond rates. However, once you have invested in NSC, the rate applicable at that time will be applicable throughout the entire duration of your NSC.
  • While your capital is completely protected, NSC is not inflation-protected.
  • NSCs come with a lock-in period of five years. Premature encashment is possible only in the event of the death of the certificate holder.

Both FD and NSC offer a safe avenue for your investments and you need to decide which one suits you as per your needs and requirements. Both of these help protect your money from market fluctuations and offer low risk, stable and guaranteed returns, thus helping you grow your wealth steadily. You can ladder your investments to ensure a steady income stream and even meet your retirement goals.

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