What is the Difference Between NSC and RBI Bonds?

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Regarding government-sponsored investment, National Savings Certificate (NSC) and RBI Bonds are important. NSC is a tax-saving investment scheme available in local post offices, encouraging small or medium-term savings.

Alternatively, RBI Bonds are fixed-term deposits, which take place between the RBI, an issuer, and the bondholders. Since both of them are government-backed, they are risk-free. However, they have some differences in their nature and working patterns. Keep reading to gain more knowledge about NSC vs RBI Bonds.

NSC stands for National Savings Certificate. It is a government-backed fixed-income scheme introduced and controlled by the Government of India, which you can open easily from any post office branch. This savings bond enables nationwide individuals to make their investments and save income tax simultaneously.

This scheme is comparatively less risky than Public Provident Fund (PPF) and Post Office FDs. If you plan to invest in an NSC scheme, you must maintain an account and invest at least ₹1000 every year. NSC also comes with a lock-in period of 5 years. Even though you cannot keep two NSC plans simultaneously, you can repurchase a new scheme after the previous one expires.

As its name sounds, RBI bonds are offered by the Reserve Bank of India (RBI), and it was introduced in the year 2003. These bonds have an interest rate of 8.05% per annum, payable every six months on January 1 and July 1. The RBI has the complete liberty to modify the interest rate.

Regardless of minors and senior citizens, any individual can opt for the RBI Bonds. Even though RBI Bonds of savings perform quite similarly to other savings bonds, they come with a higher interest rate. This way, they help an individual save money and earn investment interest.

Investment Flexibility

While investing in NSC, you can put money as minimal as ₹100 for an opening investment. Furthermore, there is no maximum limit to invest in this instrument.

Tax Benefits

Since NSC is a government-sponsored tax-saving scheme, the principal amount invested in it can get tax savings as per Section 80C of the Income Tax Act up to ₹1.5 Lakhs per annum.

Rate of Interest

The NSC certificates earn a yearly fixed interest, revised every three months by the government, thereby ensuring a steady income for the investor.

Accessibility

You can easily buy NSC certificates from any post office once completing the necessary paperwork. Also, the procedure to transfer this certificate from one post office to another or from person to person is quite easy as it does not influence accrued interest or maturity of the certificate.

Collateral

NSC certificates are acknowledged as collateral for secured loans in financial institutions. Under such circumstances, a transfer stamp is added to the certificate and transferred to the financial institution while paying out loans.

Nomination

Investors can nominate the name of any of their family members in the certificate so that the latter can inherit the matter if anything unfortunate happens to the investor.

Corpus on Maturity

On maturity of the NSC, the investor will get the entire corpus value. However, the return on investment from NSC is comparatively much lower than other investments, including government-backed investments such as Public Provident Fund (PPF).

Computerised Application Form

When acquiring RBI Bonds, their application forms are issued in electronic form following the Bond Ledger account.

Maturity

The RBI Bonds have a maturity period of 7 years. During this long maturity term, anyone can ask for a return due to a cash crunch.

Penalty

Terminating RBI Savings Bond earlier can be problematic as it invites a penalty of 50% of the outstanding interest to be paid within six months of the tenure of your bond.

Rate of Interest

Regarding RBI Bonds, their interest rate presently stands at 8.05% per annum. Besides a tenure of 7 years, the interest earned on an RBI Bond investment is generally taxable. This rate of interest rate revises every 6 months. In addition, there are two options for paying interest.

Maximum and Minimum Amount

 The minimum amount you can invest in an RBI Bond is ₹1000. Although no highest limit is fixed for this investment option, an investor must invest quite a lump sum of funds.

No-collateral Usage

Remember that RBI Bonds can neither be traded in a secondary market nor be offered as collateral to avail credits.

Ownership

The ownership of RBI Bonds is not transferable. This signifies that you cannot transfer its ownership to another person. However, in the event of a bondholder’s premature death, the bond will be transferred to that person’s nominee as mentioned by the bondholder while availing the bonds.