What is the Difference Between NSC and PPF?

source: tnn

Both PPF and NSC have gained tremendous popularity among Indians due to their assured returns. However, many people seem confused regarding which one will better suit their portfolio rather than which should get preference over the other. 

As you may feel attracted by their highly-rewarding features, it is necessary to know about these schemes in general before picking an instrument to achieve your financial goals. So, here is everything about NSC vs PPF that a beginner must know to ensure the utmost safety of their resources.

The NSC or National Savings Certificate is a centrally backed scheme regulated by the post office. If you intend to invest in an NSC scheme, you have to maintain an account with a minimum investment of ₹ 1,000 annually. For any amount higher than this, you can deposit cash denominations in multiples of ₹ 100. 

An NSC scheme features a lock-in period of 5 years. Though you cannot hold two NSC plans simultaneously, you can repurchase a new scheme after the 5-year window of the previous scheme expires. Once you buy the certificate at a quoted rate, the interest remains the same for the entire tenure. The current interest rate is 6.8% per annum which gets compounded every fiscal year.

PPF has gained popularity among investment-minded Indians as it acts both as a wealth-building and tax-saving option. You can stay assured of returns as the deposited amount is invested in safe places backed by the Indian Government. 

Unlike a short lock-in period of 5 years in the case of NSC, PPF comes with an extended maturity window of 15 years. After this tenure is over, you may prolong your investments for another five years at a time or simply withdraw the entire fund. Though the annual investment cap cannot exceed ₹ 1.5 Lakhs for a PPF account holder, the whole return comes under tax exemption as per Section 80C of the IT Act.

You can experience the following investment benefits if you buy a National Savings Certificate:

• Assured returns await you after a lock-in period of 5 years, provided you have deposited the minimum balance for each year.
• You can maintain an active NSC status with only ₹1,000 each year. On the other hand, there is no upper limit to this contribution. 
• Up to ₹ 1.5 Lakhs worth of investment in an NSC annually can be considered for tax exemption. For that, you must apply for tax deduction abiding by the regulations of Section 80C of the 1961 IT Act. 
• Some banks provide credit facilities against NSC schemes. Thus you can reach out to them, offer your NSC as collateral, and avail loans. 

Investing through NSC is risk-free and uncomplicated. All you need to do is visit a post office and fill out the application form attaching the required documents.

A wide collection of benefits make PPF a popular investment instrument. Here, we have discussed them in detail:

• Public Provident Fund offers the same benefits whether you maintain an account with a bank or post office. The central government uniformly regulates the funds of the PPF account holders. Therefore, the returns do not get affected by the performance of the secondary market.
• You have to deposit only ₹ 500 in a year to maintain an active PPF account. A monthly deposit can be as low ₹ 50, and you cannot exceed more than 12 instalment payments in a whole calendar year.
• Upon completion of 5 years, you may partially withdraw your PPF funds.
• Banks offer loans against PPF holdings for up to 25% of the deposited amount. To avail of this benefit, you have to apply for a loan between the 3rd and 6th year of the tenure. 
• The maturity amount is eligible for tax exemption as per Section 80C of the Income Tax Act.

Both are safe investment options that suit the nature of those who prefer low-risk investments. As you get assured benefits from these instruments in today's high inflation-hit market, they are both worth considering.

Based on your goals, one of these schemes can be better for you. For instance, if you feel confident about generating sufficient returns from the stock market, then you can play safe with NSC investments so that they contribute reasonably to your mid-term goals.

On the other hand, if you are planning for your child’s higher education or buying a new house by the time you reach retirement age, then you can opt to invest in a bank or post office PPF.

The motive of this discussion is to stress that both of these investments, if incorporated together wisely, can provide a boost to your investment portfolio. Hence, after assimilating the key points of NSC vs PPF, it is crucial to spot their advantages and utilise them to the best of your interests.