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National Savings Scheme (NSS) offers an assured return and tax rebates under Section 88 of the Income Tax Act, 1961. The rate of interest is 9 per cent per annum, compounded annually.
INVESTMENT OBJECTIVES
Is the NSS suitable for an increase in my investment?
NSS is mostly viewed upon as a tax-saving instrument. It combines growth in money (capital appreciation) with cuts in tax outgo, albeit at a lower rate.
Is NSS suitable for regular income?
No, NSS is not meant for earning regular income. It serves primarily as an instrument to reduce tax liability.
To what extent does the NSS protect me against inflation?
Since the NSS has a fixed rate of return, it cannot provide adequate safeguards against high inflation rates.
Can I borrow against NSS?
No, it is not possible to borrow against your investment in the National Savings Scheme. It is a savings plan that also offers tax benefits, and it cannot be pledged as security to any bank for availing a loan.
RISK CONSIDERATIONS
How assured can I be of getting my full investment back?
The NSS has the backing of the GOI. Therefore, you can be assured of getting back your full investments. This is a safe option to go in for, as the risks are minimal.
How assured is my income?
Your income is assured at the specified rate of interest. Since the NSS has the backing of the GOI, this is a risk-free avenue of investment.
Are there any risks unique to NSS?
No, there are no risks associated with your investing in the NSS. This is a safe mode of investment, as it provides savings and interest income over a period of four years, and offers additional tax benefits as per the provisions of the Income Tax Act, 1961.
As with the NSC, the NSS too is, essentially, a tax-saving scheme and, therefore, economic factors do not influence buy, hold, and sell decisions.
Is the NSS rated for credit quality?
No, since the NSS is backed by the GOI, it requires no commercial rating, and is deemed to be a risk-free investment.
BUYING, SELLING, AND HOLDING
How Do I Buy National Savings Schemes?
NSS is available at post offices across the country. You can open only one account in a year. There is no prescribed upper limit to the amount you might want to invest in the scheme. Accounts cannot be opened by an investor in the name of his/her spouse. But you can avail of the nomination facility to nominate any person as the beneficiary.
What is the minimum investment and range of investment in NSS?
National Savings Scheme units are issued in various denominations with the minimum investment being Rs 100. There is no prescribed upper limit on investment. However, the scheme offers a coupon of 9 per cent as compared to 9.5 per cent offered by NSC. Moreover, the interest is compounded annually as against semi-annually in NSC.
What is the duration of the NSS?
NSS has a duration of four years as compared to NSC, which has a duration of six years. You can extend the duration of your NSS units thereafter if you so desire.
Can NSS be sold in the secondary market?
No, the NSS does not have a secondary market and cannot be traded.
What is the liquidity of National Savings Schemes?
The NSS does not offer the benefits of liquidity. There is no premature withdrawal facility except in case of the death of the holder. However, the interest accrued on NSS can be withdrawn at any point. The deposit (principal) can be withdrawn only on maturity of the instrument at the end of four years and the account can be closed at the discretion of the investor.
How is the market value of NSS determined?
As mentioned earlier, the NSS does not have a secondary market. Therefore, the question of market value of NSS does not arise.
What is the mode of holding of NSS?
NSS units are held physically in the form of certificates that are issued to the investors by the post office.
TAX IMPLICATIONS
The NSS offers tax incentives as per the provisions of the Income Tax Act, 1961. You can avail of rebates on both the principal invested as well as the interest income under Section 88 of the Income Tax Act. The annual interest income qualifies for exemption under Section 80L, i.e., interest income upto Rs 9,000 is tax-exempt. Moreover, interest income is not subject to TDS.
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