FD Vs NSC: Which is a Better Investment Option?

What are some investment options? Some would say FDs, and some would say NSC (just because they have been around for so long and gained the trust of the people). In this post, let's compare these two famous investment choices: fixed deposits and national savings certificates. At the conclusion of this post, you will understand which investment choice is best for you to get started with.

An Overlook of FD and NSC

Let's have an overview of each of the investment options:

What is NSC?

The National Savings Certificate (NSC) is a fixed-income post office savings plan provided by the Government of India. To activate this program, visit the post office. The minimum investment in this plan is INR 100. However, there is no upper limit because anyone can invest any amount in this plan. The plan has a five-year lock-in term, after which the certificate cannot be extended. Thus, to continue the scheme beyond five years, individuals must acquire a new certificate at the end of the duration at the current interest rate.

What is the Benefit of Investing in NSC or National Saving Certificate?

When you invest in the National Saving Certificate, you can experience the following perks of the instrument:

1) The investment amount and Interest earned are tax-free under Section 80C of the Income Tax Act of 1961. 2) The Interest on NSC is compounded annually, resulting in bigger returns. Furthermore, it provides set returns for the duration of the investment. 3) The least amount to invest is INR 100, and there is no maximum amount. 4) Since the government backs this instrument, it is a low-risk investing opportunity. 5) One can take NSC on behalf of a minor. It can also be used as collateral for bank loans. 6) It is readily available at all post offices. After submitting the requisite KYC papers, one can invest in NSC from any post office. 7) What is a Fixed Deposit? 8) A fixed deposit or FD is a financial program that allows an investor to invest a lump sum with a bank at a fixed rate of interest for a certain length of time. One can invest for as little as seven days or as much as ten years. At maturity, you will get the original investment amount plus Interest. 9) Investors can select between many forms of fixed deposits. One of them is a tax-saving fixed deposit, which provides a tax benefit under Section 80C of the Income Tax Act of 1961. The size of the deduction is determined by the amount invested. Investing in a tax-saving FD allows investors to save up to Rs. 1,50,000 in taxes. However, the tax-saving FD has a five-year lock-in term. Furthermore, the Interest generated on a fixed deposit is taxed at the corresponding income tax slab rate.

What is the Benefit of Investing in a Fixed Deposit?

Mentioned here are the benefits of investing in a fixed deposit:

1) The tax-saving FD plans are widely accessible in both public and private sector banks. Thus, an FD account may also be opened using online banking. 2) FDs can be automatically renewed. It is not necessary to visit the bank for renewal. 3) One can open an unlimited number of FDs at different banks. As a result, these plans are an excellent method to save money over a certain period of time. 4) Fixed deposits provide higher yields than savings accounts. Furthermore, they provide guaranteed profits during the investment duration. 5) Investments in tax-saving FDs have a 5-year lock-in term. Thus, it provides a tax exemption of up to Rs. 1.5 lakhs under Section 80C.

Are There Any Drawbacks to Investing in Either Instrument?

Every coin has two sides, and so does any kind of investment option, so here are the limitations of both investment vessels:

How do you choose between NSC or fixed deposit?

There are certain factors that you would have to consider before you can start your investment.

Now that you understand each of the schemes in detail, you have to do your own financial assessment.

1) Understand your risk appetite and how much risk tolerance you currently hold. 2) Analyze your future financial goals, align them with the investment, and see if they match. 3) When you know your goals, you will know for how long you can stay invested; based on this, you can choose an option. 4) Use an online returns calculator to calculate the estimated returns you would earn for each investment instrument. Choose one option that suits you most. Also, this can tell you how much you can allocate for the investment.

Conclusion

Have you weighed all the possibilities against the odds? You know the pros and cons of each of the investment options mentioned above. This lets you understand which investment choice to invest in. First things first, you need to analyze your own financial goals and tolerances before analyzing an FD or an NSC; this makes sure that you always choose a program that suits you the most.