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Friday, January 15, 2016

10 year NSCs discontinued

 
10-year NSCs
 
National Savings Certifi cate (NSC) IX, which had a term of 10 years, has been discontinued. The move was approved and notified by the Ministry of Finance on 1 December 2015 and the postal department stopped issuing these certificates from 20 December 2015. Observers say the instrument was discontinued because it locked-in the government into a long-term commitment in a falling rate regime.

A senior Finance Ministry official echoed the sentiment when he said, Due to the 10 year lock-in, the product had become unpopular and the collections were very slow. Moreover, KVPs were launched, which is a similar product and there was no point of promoting two identical products.

Available in denominations of `100 to `10,000, the interest offered on 10-years NSCs was 8.80%. This was higher than the 100month Kisan Vikas Patras which offer 8.7% interest per annum. The Public Provident Fund (PPF), with a 15-year lock-in, also provides an interest rate of 8.7%, but the rates get revised every year. On the other hand, the NSCs guaranteed the same rate for the whole investment term.

Although the interest rates of small savings schemes have been linked to the bond yields in the secondary market, the 10-year NSC meant that the buyer locked in at a rate that remained fixed for the rest of the tenure. So, while the rates for NSC were revised, they were effective only for the NSCs issued for that particular year. It, therefore, appears that the government was trying to avoid issuing long-term contracts.

The five-year NSCs still remain. They offer an interest rate of 8.5% and accept deposits `100 onward. These NSCs can be purchased by any adult for himself or on behalf of a minor. These single-holder certificates come in smaller denomination than the KVP, which requires a higher minimum investment deposit of `1,000. Also, the deposits qualify for I-T rebate under Section 80C of Income Tax Act.

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