What is the Difference Between NPS and NSC?

The National Pension System or NPS is a scheme organised by the Indian Government for offering old age earning and social security to the citizens. On the other hand, National Savings Certificate or NSC scheme is an investment initiative which aims to provide savings and tax benefits to individuals.

Often, people get confused between NPS and NSC by considering them as same. However, both of these investment options have some differences. To know about NPS vs NSC in detail, keep reading.

The National Savings Certificate (NSC) is a fixed-income scheme for investment, introduced and managed by the Indian Government, which you can easily open from any branch of a post office. Basically, it is a savings bond which allows individuals and investors across the country to make investments while saving on income tax. This scheme is relatively risk free like fixed-income instruments such as Public Provident Fund (PPF) and Post Office FDs.

The National Pension Scheme (NPS) is a voluntary retirement programme organised and implemented by the Central Government. This social security scheme helps employees from both private and public sectors to make wise decisions regarding retirement savings so that they can lead a better future with a steady financial life. However, this scheme is open to everyone excluding those who belong to the armed forces. Many people across the nation have used the NPS scheme for investing in pension accounts periodically across their employment tenure. During the post-retirement phase, subscribers draw a certain portion from this amount as their retirement fund.

Following are the key benefits of a National Savings Certificate (NSC):

Tax Benefits

One of the top advantageous factors of NSC is that it offers tax benefits since it is backed by the government tax-saving scheme. This helps you make a claim of up to ₹ 1.5 Lakh according to Section 80C.

Interest Rate

At present, the interest rate offered by the National Savings Certificate (NSC) scheme is equivalent to 6.8% per annum, which is revised by the government at the end of each quarter. This interest rate is compounded yearly but can be payable only at maturity.

Minimum Investment

Investing in a National Savings Certificate is affordable to all classes of people in society. You can invest as minimum as ₹ 1000 the first time and thereafter increase the amount whenever it becomes viable for you.

Accessibility

The NSC scheme can opt from any post office just after the submission of the required documents and completion of KYC verification. Thereafter, you can also transfer the certificate from one branch of a post office to another.

Loan Security

Financial institutions consider NSC as collateral for secured loans such as loans against property, home loans, etc. To do this, the concerned postmaster needs to put a transfer stamp on your certificate before sending it to the financial institution.

Premature Withdrawal

In general, an individual cannot exit a National Savings Certificate (NSC) early. However, it can be accepted only in the case of certain critical scenarios, such as the demise of an investor or any involvement of a court order in the process.

Mentioned below are the noteworthy advantages of NPS:

Portable

The NPS scheme features comprehensive portability across various jobs and across locations. It offers a seamless transitional arrangement for subscribers when that individual switches to either a new job or changes location.

Flexibl

NPS comes with an array of investment choices alongside pension funds (PFs) in order to plan prudently for the growth of investment and monitor the same. Being a subscriber, you have the option to switch from one investment choice to another or even from one fund manager to another if you are not satisfied with their performance. You will get this in both Tier I and II accounts. Details about these accounts are stated below:

• Tier-I Account: The Tier I account is a non-withdrawable fixed retirement account wherein the contributions you make periodically are invested and credited according to the fund manager or investment portfolio you choose.
• Tier-II Account: The Tier II account is a voluntary withdrawable account and being a subscriber, you can opt for it only if you have a prevailing Tier I account under your name. Here you can make your withdrawals as per your needs whenever necessary.

Well Regulated

The NPS scheme is properly regulated by PFRDA and comes with crystal-clear investment rules, time-to-time monitoring, as well as performance appraisal of fund managers by the NPS Trust. Compared to different other pension schemes, the account maintenance charges under NPS are much lower.

Higher Returns and Interest

Compared to various other traditional investment options for tax-saving, NPS enables you to get a much higher return on your investment. Over the earlier decade, it has offered annual returns of 9% – 12% which makes it a steady investment choice for you.

Tax Benefits

You can claim a deduction up to the extent of ₹ 1.5 Lakhs towards your contribution (investment) in NPS. This also applies to the employer's contribution. For a salaried employee, one can claim a deduction of a maximum of 10% of their salary under Section 80CCD (1) of the Income Tax Act, while for the self-employed, there is a limit of 20% of their gross income.

Exit Rule and Opportunity of Premature Withdrawal

As a pension scheme, it is vital for you to invest till you become 60 years old. However, if you are investing for a minimum of three years, you can withdraw an amount of up to 25% whenever necessary. These comprise children’s marriage or education, owning a house, medical treatment, etc. You may withdraw up to three times during the entire tenure. These restrictions are only available in Tier I accounts.

Both NPS and NSC are investment instruments that offer tax benefits. Your choice of investment will depend on your financial requirements. While comparing between NPS and NSC to find a suitable one where you should invest, it is important to note that both investment options come with advantages and drawbacks.

• The National Pension Scheme or NPS is fairly a long-term investment (you need to continue investing in it till you reach 60 years) and intended to ensure old-age earnings in the form of a pension. Since the National Pension Scheme or NPS carry exposure to equity, they are vulnerable to market volatility. However, they offer high returns too.  Investing in NPS is best for investors who want to secure their old-age earnings after retirement but do not hesitate to take a bit of risk to get higher returns.
• On the contrary, National Savings Certificate or NSC is a fixed-income plan backed by the Indian Government and so it has an assured rate of return alongside complete capital security. So, investing in NSC is the best choice for people who are unwilling to take a risk and remain happy with a steady and get assured return after five years. Finally, both investment schemes are regulated by the Government of India and come with tax benefits.

Now, after having gone through the comparison chart and the above discussions you can decide the investment option that suits you the best.

Having a crystal-clear idea about NPS vs NSC from the above discussion will help you to choose the best investment option for you. However, keep in mind that although both of them are managed by the Indian Government, they have some differences in their rules and regulations. So, make sure that you go through each of them carefully and take your decision prudently.