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Bank FD or NSC: What should an investor choose? Tags: FD Bank FD NSC FD Rates

When it comes to tax saving instruments, there are a number of options available for Indian investors. National Savings Certificates (NSCs) and 5-year bank FDs are among them. An NSC is a type of savings bond issued by the government of India. A 5-year FD, on the other hand, is a type of deposit account where an investor puts in a set sum of money for a specified duration at a given rate of interest.

When it comes to choosing between an NSC and an FD, most people get confused because the features of both the instruments are similar. Both offer tax benefit under Section 80C of the Income Tax Act. Let us now take a detailed look at the features and differences between each type of instrument.

NSC is primarily issued by India Post and the rate of interest offered on this scheme at present is 7.8% p.a. On the other hand, when it comes to FDs, the interest rate varies from bank to bank. Some banks offer an interest rate of up to 9.00% p.a. for 5-year deposits. For instance Mahaveer Bank pays a deposit rate of 9.00% p.a. for regular individuals and 9.50% p.a. for senior citizens.

Both FDs and NSCs come with a minimum lock in period of 5 years. Hence, depositors cannot make any kind of premature withdrawal in the case of both these types of investment options. While regular FDs come with a premature withdrawal option, those that comes with a tax benefit have a mandatory lock-in period of 5 years.

When it comes to loans, your NSC can be used as a good collateral for any type of loan. On the other hand, loans are typically not issued against a 5-year tax saving term deposit. Though overdraft/loan facility is available on other term deposits that do not fall under the tax saver category.

As far as the security of the deposit is concerned, both NSC and FD offer guaranteed returns at the end of the maturity period. Since NSCs are issued by the government there is always a sense safety attached to it. FDs too are safe but when it comes to company term deposits it is advisable to check the ratings before making an investment decision.

On the whole, both NSCs and FDs are a good choice when it comes to saving tax. Certain term deposit schemes may offer a higher annual percentage gain, making it a more lucrative option than the average NSC. This rate offered though may vary from bank to bank and it is very important for the investor to choose a bank that offers a great rate of return.

Those who want to diversify their investment portfolio may also choose to go for a mixture of both options. One also split up their investment and put in a certain percentage in a term deposit and a certain amount in an NSC.

To sum it up, it all depends on the comfort level of the investor. Both FDs and NSCs are great options and one can choose an option based on his/her own investment needs and priorities.



March 2018 (2)
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