NSC Or PPF: Which Is A Better investment?

Usually, individuals look for safety, returns and tax benefits when they want to invest. They also look for safe investment instruments that can help them meet their financial goals. To meet these purposes, there are two small savings schemes offered by the government. They are the Public Provident Fund and National Savings Certificate. Both the small savings (PPF and NSC) provide safety of capital and guaranteed interest payments over the tenure of the scheme.

What Is A National Savings Certificate NSC?

National Savings Certificate is a post office saving scheme offered by the government of India. An individual can invest any amount in this scheme, but the minimum amount of investment is INR 100.

• The tenure of this scheme is five years. One cannot extend the certificate beyond this tenure. However, individuals can purchase a fresh certificate at the end of 5 years at the prevailing interest rates. 

The interest rates in this scheme remain constant throughout the tenure. The current interest rate for an NSC is 6.8% p.a. Also, the interest is compounded annually.

• The principal amount, as well as the interest accrued, qualifies for an 80C deduction. However, keeping in mind that the maximum benefit available is limited to Rs.1.5 lakh under Section 80C of the Income Tax Act, 1961. 
• All the residents of India are allowed to invest in NSC. However, NRIs are not allowed to open a new NSC. They can continue to hold their existing NSC until maturity. 

Benefits Of Investing In NSC

The following are the benefits of investing in the NSC Investment option.

• Investment in NSC offers assured returns to investors for 5 years.
• The minimum investment amount is Rs. 100. However, there is no maximum limit for investment in NSCs. 
• Many banks allow loans against NSC certificates. Individuals can use NSCs as collateral to avail of loans.
• It is easily accessible as it can be bought from any post office on submission of required KYC documents. 
• Individuals can claim for tax exemption under Section 80C of the Income Tax Act, 1961. 

What Is A Public Provident Fund PPF?

The Public Provident Fund PPF is an investment cum tax saving instrument. PPF is a long-term savings scheme launched by the National Savings Institute in 1968. The Government of India backs this scheme. Hence, the returns are guaranteed.

• A PPF has a lock in 15 years. Any individual can extend the scheme for a block of 5 years. Also, one can open a PPF account with a minimum deposit amount of Rs. 500.
• As per the new rules, they can invest Rs. 50 any number of times towards their PPF. Moreover, investors can open only one PPF account. Multiple PPF accounts are not allowed.

The rate of interest on a PPF is fixed by the Finance Ministry which is announced every quarter. The current interest rate on PPF is 7.1%. 

• The interest payment on the PPF account is made on 31st March every year. Also, the PPF scheme falls under the EEE tax-exempt category.
• This means that the annual contribution, accumulated interest and maturity amount are tax-free.  Therefore, PPF has a total benefit of Rs. 1.5 lakh under Section 80C of the Income Tax Act,1961.

Benefits Of Investing In PPF

The following are the benefits of investing in Public Provident Fund PPF

• PPF is a government-backed scheme and hence the returns are fixed. The rate of interest is not affected by market volatility. 
• The minimum investment amount is Rs. 500. However, one can make multiple deposits of Rs. 50 in a financial year. 
• Individuals can avail loans against their PPF between the 3rd year and 5th year. 
• PPF also comes with withdrawal facilities. Investors can partially withdraw from their PPF after the completion of 5 years. 
• Investing in PPF also has tax benefits. PPF investments fall under the EEE category where investments, interest and redemptions are exempted from tax. The investment amount is up to Rs. 1.5 lakh is exempted from tax under Section 80C.

 PPF VS NSC Investment

Both PPF and NSC are considered to be safe investment options. There is a safety of principal amount and surety of returns in today’s market volatility. One of the best ways to optimise returns is to plan how to invest in these schemes.

• Both PPF and NSC provide tax benefits. Furthermore, one can compare NSC and PPF Interest Rates to understand the returns earned from them.

Ultimately, based on financial goals, one can choose to invest in any of these savings schemes. 

• For long-term financial goals like retirement planning, one can choose to invest in a Public Provident Fund as it can also be extended further for a block of 5 years.
• In contrast, NSC can help investors meet their small amount of short-term goals and help them with tax planning.

Therefore, either of the schemes or both can help to fulfil investment objectives. It all depends on the choice of the investor. 

Also Read: 5 Best Monthly Savings Schemes In India

Disclaimer: This article is issued in the general public interest and is meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive and should research further or consult an expert in this regard.