NSC or Tax Saver FD?

POSTED BY Ram ON March 10, 2011 6:14 pm COMMENTS (3)

Considering post-tax returns for someone in the lowest tax bracket, is it better to invest in National Savings Certificate (NSC) or Tax Saving Fixed Deposits offered by various banks?

I noted that some public banks offer as high as 9.75% p.a. on tax saver FDs.



3 replies on this article “NSC or Tax Saver FD?”

  1. Ram says:

    Thank you both for your helpful inputs.


  2. ashal jauhari says:

    Dear ram, As of now you are in lower Tax bracket but over the next 5Y period, your income ‘ll increase & I don’t what ‘ll be the rise. There may be a situation that after 2-3 years you are in higher Tax slab than from your current one. Accordingly your post tax return from Bank FDs ‘ll also go down.

    Even If we consider, 20.6% tax slab in future, the adjusted Post Tax return ‘ll still be around 7.74% Not bad at all.

    Invest in Bank Tax saver FDs.



  3. moneysights.com says:

    Hi Ram,

    Someone being in lowest or highest tax-bracket shouldn’t affect the decision-making for tax-saving investment. The only thing you should be sure about is how long you are willing to be ok with your money being locked-in!

    NSC has a lock-in of 6 years while tax-saving FDs have lock-in for 5 years. The interest from both are going to taxed. Why would you want to do that? Instead go for PPF. Ofcourse, your money would be locked-in for longer, but if you are putting or invest a small amount (you mentioned lowest tax-bracket), then chances 5 year or 15 year lock-in will not make much of a difference.

    We would recommend you go for tax-saving MFs. The lock-in is lesser. But ofcouse, the returns are not guaranteed. But chances are very very high that after 5 years, you would be better off with an investment in ELSS made today than tax-saving FD or NSC.

    So, our choice would be tax-saving MFs or PPF or a combination of both. You may want to visit moneysights’ tax-investment planning App for more accurate recos – goo.gl/i2YXf

    Happy tax-saving!


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