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The National Savings Certificate (NSC) is the bedrock of investment schemes for conservative investors. A government backed fixed-income investment scheme offered by India Post, when it comes to low risk, stable investments, what more do you need?
Investing in the National Savings Certificate (NSC) is thus a popular investment option for investors who are risk averse and looking for long term returns and tax benefits.
In this article, we’ll go through some key aspects of investing in NSC, and some alternative investments for those looking for higher returns.
Key Features of National Savings Certificate (NSC)
Before delving into the alternatives, it’s important to understand the key features of NSC:
- Investment Period: NSC has a 5-year lock-in period.
- Minimum Investment: The minimum investment amount is ₹1,000, with subsequent investments in multiples of ₹100.
- Maximum Investment: There is no maximum limit on the investment amount.
- Interest Rates: The interest rate on NSC is reviewed quarterly by the Ministry of Finance. The current rate is 7.7% per annum.
- Tax Benefits: Investments in NSC are eligible for tax deductions of up to ₹1.5 lakh per year under Section 80C of the Income Tax Act. Interest earned in the first 4 years is also tax-deductible.
- Premature Withdrawal: Generally not allowed before the 5-year lock-in period, except in specific cases like medical emergencies or higher education.
- Transferability: NSC certificates can be transferred under certain conditions.
- Loan Facility: NSC certificates can be used as collateral to avail loans from banks.
Top 5 Alternative Investments To National Savings Certificate
Real Estate (Fractional Ownership of Commercial Real Estate)
Since we are talking about alternative investments, it’d be remiss to not mention fractional ownership of commercial real estate.
Most commercial real estate properties are too expensive to be bought by one investor alone. This is where fractional ownership comes in. It allows multiple investors to own part of a commercial real estate property each, and at the same time invest in high end commercial properties with a fraction of the money.
Key Features of Fractional Ownership
The investment period would differ depending on the property and terms of the investment. The returns would come through rental income and potential capital appreciation.
Fractional ownership is a way for an investment portfolio to become exposed to real estate as well as to enable small investors to get access to large and valuable real estate markets.
It provides rental income along with potential capital gains. However, real estate values are, of course, dependent upon the situations prevailing in the market, and it is less liquid in comparison to other investments.
Invest in EVs (Electric Vehicles)
Investing in EVs is currently one of the fastest-growing alternative investments in the country. The automobile industry is undergoing a significant transformation, and investing in EV stocks and infrastructure presents an excellent opportunity for investors looking to capitalize on the trend toward sustainable and green technologies.
The EV market’s growth potential is immense, with rapid expansion due to increasing adoption and technological advancements.
Assetmonk has introduced a fixed-income product in the EV public charging sector, requiring a minimum investment of INR 5 lakhs and offering a 12% fixed yield. This investment will support a promising company in establishing public charging stations with fast chargers along Southern highways connecting 18 cities, including Bengaluru, Chennai, Vizag, Hyderabad, Vijayawada, and Tirupati, providing investors with a revenue-sharing opportunity.
Structured Debt Backed By Real Estate
Structured debt investments involve lending money to real estate developers or projects and securing the loan with the underlying real estate asset.
Features of Structured Debt Investments
These kinds of instruments come with different tenures of investments and generally offer higher fixed returns compared to traditional FDs and NSCs. With the real estate backing, these investments are relatively safe.
Structured debt investments have the potential to provide stable, monthly income, and add a layer of diversification to your portfolio by introducing you to new asset classes.
Risk potential: However there remains a risk of default from the borrower, which is mitigated by collateral. Further, the instruments may not be as liquid as conventional investments like FDs.
Fixed Deposits
Another favorite among conservative investors are Fixed Deposits (FDs). They are a similar low risk investment, but provide greater flexibility. FDs can give you a wide range of tenures, from 6 months to 10 years, giving investors a lot more flexibility than the 5 year lock in period of NSCs.
Interest rates on FDs however, can be slightly higher than NSCs, and are fixed for the entire time.
Premature withdrawal is allowed, although it usually incurs a penalty. Some tax-saving FDs also offer deductions under Section 80C. One of the key benefits of FDs is the fixed and assured returns without market risk. Additionally, bank FDs are insured up to ₹5 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC), adding an extra layer of safety. However, early withdrawal penalties can reduce the effective return, and FDs may not keep pace with inflation over long periods.
Equity Linked Savings Scheme (ELSS) Funds
ELSS funds, or equity linked savings scheme funds are a type of mutual funds associated with equity. They come with tax benefits, and also have a relatively low lock in period.
ELSS has a lock-in period of 3 years, and investments up to ₹1.5 lakh per annum are eligible for tax deductions under Section 80C of the Income Tax Act. ELSS funds also tend to have a high potential return because they have an equity exposure.
The shorter lock-in period offers greater liquidity, and the possibility for higher returns makes ELSS a lucrative option for those willing to take more risk. However, the returns are market-linked and hence can vary, making the product slightly higher on the risk parameter than NSCs and FDs.
Invest With Assetmonk
For any successful investment, finding the right balance between risk and reward is key. Factors such as your risk tolerance, investment goals, desire for stable monthly income or long term potential goals, all play a huge role.
The best way to do that is by strategically planning out your investment strategy, and creating space for a number of diversified investments in your portfolio. Striking the right balance helps investors remain confident even in the face of market fluctuations.
Assetmonk, a new age alternative investment platform specialising in commercial real estate and fractional ownership of high end commercial properties, is always ready to guide investors on their journey towards building a well-rounded and prosperous portfolio.
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