NSCs

Best SIP Funds to Invest Online 

Returns: 7.6% (For Jan-March 2018) 

The interest rate of the NSCs has been reduced to 7.6%, but are still more than what bank fixed deposits offer. The NSCs also have a sovereign backing. NSCs fell out of favour when bank rates were higher at 9-9.5% a few years ago. But deposit rates have now fallen to 6.5-7%, though senior citizens get higher rates. This makes the NSCs more attractive than bank deposits. 

What's more, the interest earned on the NSC is also eligible for deduction under Section 80C in the following years. Here's how this works. Suppose an investor buys Rs 50,000 worth of NSCs in January 2018. One year later, the investment would have earned an interest of about Rs 3,800. The investor can claim deduction for this Rs 3,800 for the year 2018-19. The next year, the investment would earn about Rs 4,100 in interest. This can be claimed as a deduction in 2019-20. 

This is especially useful for investors in the 5% tax bracket who are not able to fully exhaust the Rs 1.5 lakh investment limit under Sec 80C. The tax deduction available on the interest effectively makes it tax free for such investors. 

There have been some changes in the rules for non-resident Indians investing in small savings schemes lately. NRIs are no longer allowed to invest in these instruments. The PPF account of an individual will be deemed closed from the date he becomes an NRI and he would get only 4% interest from that date onwards. Similarly, NSCs will be deemed to be encashed by the holder on the day he becomes an NRI. 

Smart tip: Create a ladder of NSCs so that after they mature the proceeds can be reinvested to earn benefi ts. 

 

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