People often ask me about the difference between NSC and PPF.
- Both National Savings Certificate (NSC) and Public Provident Fund (PPF) are good tax-saving investment options in India, allowing tax deductions under Section 80C.
- Both NSC and PPF are government backed products and have very low risk and assured returns.
So which one is a better option, NSC or PPF? Should you invest in NSC or PPF?
To answer this question, we need to understand the difference between NSC and PPF in terms of different parameters.
#1 Difference between NSC and PPF – Product Structure
National Savings Certificate (NSC) is a medium term savings product of the Government of India issued through Postal department. When a person invests Rs. 100 in a 5 year NSC, he will get back Rs. 151 after 5 years. One can also invest in the 10 year NSC issue. In that case, he will get back Rs. 237 after 10 years.
Public Provident Fund (PPF) is a Savings cum tax-Savings Scheme of the Government of India, aimed at long term savings. The tenure of the product is 15 years and can even be extended by a block of 5 years on maturity.
#2 Difference between NSC and PPF – Type of Investment
NSC is a one-time time investment. You can invest as many times as you want, and each will be counted as separate investments. For example, if I invest Rs. 2,000 today and Rs. 10,000 next month, they are to be treated as two distinct investments.
PPF on the other hand is a periodic savings scheme. An investor has to deposit money in his PPF account at least once a year and at most 12 times in a year, for 15 years.
#3 Difference between NSC and PPF – Investment Horizon
- One should invest in NSC when one has a medium term horizon (5 to 10 years). One should invest in PPF if he is ready to commit to a long term horizon (15 years or more).
- If one knows of some expense, 5 years down the line and wants to invest for the same, NSC is the best option. This could be applicable to parents with children in secondary school (Class 8 or so), planning to save for their child’s engineering or Medical study. PPF on the other hand is more suitable as a retirement product. It is also useful for young parents who want to plan their children’s education and marriage, 10 to 15 years down the line.
#4 Difference between NSC and PPF – Returns
NSC is compounded half-yearly, whereas PPF is compounded annually.
Higher the frequency of compounding greater the returns. At 8%, Rs. 100,000 will grow to Rs. 108,000 when compounded annually. However when compounded daily, the Rs. 100,000 will grow to Rs. 108,328.
#5 Difference between NSC and PPF – Tax Aspects
- Interest Income on NSC is taxable under Income Tax act.
- A tax payer can claim tax deduction under Section 80C of his NSC investment subject to an upper limit of Rs. 1.5 lakhs.
- Again, since each year’s interest is considered reinvested in the NSC, it qualifies for a fresh deduction under Sec 80C.
- The interest accrued in the final year, does not receive a tax deduction as it is not reinvested but rather paid back to the investor along with the interest of the earlier years and the capital amount.
- Interest in PPF is tax free.
- Investment in PPF qualifies for tax-deduction under Section 80C.
Both National Savings Certificate (NSC) and Public Provident Fund (PPF) are good government savings products with assured returns and tax benefits.
Which one to choose as an investment, would be determined by your investment horizon. A good option would be to choose an NSC for regular short term investments and PPF for long term wealth creation.
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A Few Last Words
Before making any investment decision, please contact your financial adviser. I have provided this article for educational purpose only.
I hope you found this article on difference between NSC and PPF useful. If you have something to add please leave a comment in the post. Please feel free to contact me.