Should you invest in NSC or PPF?
National Savings Certificates (NSCs) and Public Provident Fund (PPF) are savings schemes introduced by the Indian government. They encourage saving and investment habits in the country. If you are looking to invest, you should certainly compare the two. But before you run any NSC vs. PPF comparisons, look at the basics. What is a PPF account and what is an NSC?
A PPF account is a popular tax-saving scheme meant for long-term investment. It was introduced in 1968. You can open a PPF account with State Bank of India. Or, you could head to a subsidiary bank like ICICI or Punjab National Bank.
An NSC is an investment tool introduced in the 1950s. You can purchase NSCs at any postal office within the country.
Which is better—NSC or PPF?
Let us compare NSC and PPF account details to understand which is a better investment option.
PPF tax benefits vs. NSC tax benefits: Both NSC and PPF offer you tax benefits under Section 80C of the Income Tax Act. This is subject to a maximum amount of Rs 1.5 lakh per financial year. But there are vital differences between the two schemes.
- With the NSC, you cannot add to your original investment. Once you buy a single NSC (minimum Rs 100), if you wish to invest more you have to buy more NSCs. But there is no limit on how much you can invest in an NSC. In contrast, the minimum investment for a PPF account is Rs 500 yearly, with an upper limit of Rs 1.5 lakh per year.
- The current NSC and PPF interest rate is 8.1%. Both are compounded
- A major benefit of PPF is that your principal and interest earned is tax-free. However, the interest earned on your NSC is taxable.
Returns on investment (ROI):
The NSC’s return on investment is locked at the time of your investment. So, you are insulated from any changes in interest rate. For PPF, the interest rates are subject to change. That means your returns may change over time.
During the lock-in period, you cannot withdraw the money that you invest in your PPF account or NSC. Your money earns interest and grows during this time. The PPF lock-in period is six years. The NSC lock-in period is equal to the maturity period of the certificate. This may be five or 10 years.
NSC Withdrawal Rules vs. PPF Withdrawal Rules:
With the NSC, there is no scope for partial withdrawals. Premature encashment is possible only if the holder of the NSC passes away. Or, you will have to get an order of a court judge or do a forfeiture by a pledge.
With the PPF account, partial withdrawals are possible from the seventh year after the creation of the account. The amount you can withdraw must be equal to the lower 50% of the account balance as at the end of the year. Premature closure of the PPF account is possible only on the death of the account holder.
Overall, PPF is a better long-term investment scheme because it is completely tax-free. If you foresee an expense, say, five years down the road, then investing in NSC is a good idea. You can be sure of your returns. For retirement and long-term purposes, however, PPF is a worthier investment.