NSC vs PPF: Which is a Better Option for Investing?

If you’re diving into the world of investments, you’ve probably come across two popular options: The National Savings Certificate (NSC) and the Public Provident Fund (PPF). Both are backed by the government, offer decent returns, and come with their own set of perks. But which one is the better option for you? It all boils down to your financial goals, investment horizon, and tax planning needs.

Key Differences Between NSC and PPF: Comparison

If you're looking at investing in NSC or PPF, you might wonder how they stack up against each other. Both are solid options for safe, government-backed savings but have some distinct features. Let’s dive into their key differences.

Duration of Investment

NSC: The National Savings Certificate comes with a fixed investment period. Typically, it’s a 5-year term, although there are options to extend for another 5 years. This fixed duration means your money is locked in for the specified period, and you’ll receive the maturity amount only after this period ends.

PPF: The Public Provident Fund has a longer investment horizon. It requires a minimum investment period of 15 years, but you can extend it in blocks of 5 years as often as you like. This longer duration is ideal if you plan for long-term goals like retirement or a child’s education.

Range of Overall Coverage

NSC: NSC is primarily a fixed-income investment, meaning it focuses on providing guaranteed returns over its investment term. It’s a safe choice for accumulating a lump sum at maturity with guaranteed interest, but it doesn’t offer flexibility regarding partial withdrawals or loans.

PPF: PPF offers a broader range of coverage with features like partial withdrawals and loan facilities against the balance in the account. This flexibility is great if you need to access funds before maturity or if you want to take a loan during the investment period.

Tax Benefits

NSC: Investments in NSC qualify for tax deductions under Section 80C of the Income Tax Act up to the prescribed limit. However, the interest earned on NSC is taxable and added to your income for the financial year it’s earned.

PPF: PPF investments offer tax benefits under Section 80C, and the interest earned is tax-free. Additionally, the maturity amount is also exempt from tax, making it an attractive option for those looking for tax-efficient savings.

Ownership and Asset Diversity

NSC: NSC is a straightforward savings instrument and is entirely focused on providing guaranteed returns. It doesn’t offer much in terms of asset diversity as it’s a fixed-income product with no exposure to equity or market risks.

PPF: While also a fixed-income product, PPF allows for greater asset diversity. The government revises the interest rate quarterly, which can sometimes be more favorable than the fixed interest rates of NSC. Additionally, PPF accounts can be opened individually or jointly, offering some flexibility in ownership.

Expected Returns

NSC: NSC typically offers a fixed interest rate, which is set by the government and is usually higher than standard bank savings accounts but lower than some other investment options. As of now, the interest rate is around 7% per annum, compounded annually.

PPF: The government also revises the PPF's fixed interest rate quarterly. The rate is generally competitive and can sometimes be higher than the NSC rate, depending on economic conditions. Currently, it is around 7.1% per annum, compounded annually.

Contribution Details

NSC: You can invest in NSC with a minimum of ₹100, and there is no upper limit on the amount you can invest. However, the entire amount invested will be locked in for the 5-year term, and premature withdrawals are not allowed.

PPF: PPF requires a minimum annual contribution of ₹500; the maximum contribution is ₹1.5 lakh per year. You can contribute in a lump sum or installments, and you can make contributions for up to 15 years, with options to extend beyond that.

FAQs on NSC vs PPF

1

Which investment option, NSC or PPF, offers better returns?

The PPF generally offers slightly better returns compared to the NSC, with the current PPF interest rate at around 7.1% per annum and the NSC at around 7% per annum. However, the actual returns can vary based on the prevailing interest rates set by the government.

2

What are the eligibility criteria for opening an NSC account versus a PPF account?

NSC: Any Indian resident can open an NSC account. There are no specific age or income restrictions, and it can be opened by individuals or jointly.

PPF: Indian residents can open a PPF account. It can be opened by individuals, and in the case of a minor, a guardian can open it. NRIs are not eligible to open a PPF account.

3

How do the tax benefits of NSC and PPF compare?

NSC: Investments in NSC qualify for tax deductions under Section 80C, but the interest earned is taxable.

PPF: Investments in PPF qualify for tax deductions under Section 80C, and both the interest earned and the maturity amount are tax-free.

4

What is the minimum and maximum investment limit for NSC and PPF?

The minimum investment for NSC is ₹100, and there is no maximum limit. Regarding PPF, the minimum annual contribution is ₹500, and the maximum is ₹1.5 lakh per year.

5

How does the lock-in period differ between NSC and PPF?

The lock-in period for PPF is 15 years, with options to extend in blocks of 5 years after maturity. On the other hand, the lock-in period for NSC is 5 years, although it can be extended for another 5 years.

Suggested Readings

1. How to Check Old-Age Pension Status: Step-by-Step Guide

2.What are Pension Funds and their Types?

Written By :

Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Reviewed By :

Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors