The majority of us prefer risk-free investments with guaranteed returns and have some kind of tax benefits attached to them to fulfil our financial goals. Among various investments that offer these benefits, two of them stand out. They are the National Savings Certificate (NSC) and the Public Provident Fund (PPF). Both are small savings schemes that help in fulfilling different financial goals. Read on to find out how these two stand against each other and which is a more suitable investment for you.
The National Saving Certificate (NSC) is a small savings scheme introduced by the government of India in 1989. The primary purpose of the scheme is to encourage savings among small and middle-income citizens. NSC pays a fixed interest at the time of maturity, but it is compounded annually. The scheme is regulated by the Ministry of Finance, which announces the interest rate every quarter. For the July – September 2023 quarter, the interest rate of the scheme is 7.7% per annum. You can invest in NSC through any post office or an authorized bank. If you are looking for an investment to save on tax and earn guaranteed returns for a tenure of five years, then NSC is your go-to investment.
The Public Provident Fund (PPF) is a small savings scheme introduced by the government in 1968. The primary aim of the scheme is to encourage long-term savings. The scheme pays a fixed interest on 31st March every year, but it is calculated on the minimum balance in the account between the 5th and 30th of every month. PPF has a tenure of 15 years, which means your investment is locked in during the entire tenure. You can also extend the scheme in blocks of five years after the tenure ends. The Ministry of Finance decides the PPF interest rate every quarter, and for the July-September 2023 quarter, the interest rate is 7.1%. You can invest in PPF through any post office or an authorized bank. If you want a risk-free long-term investment, then PPF suits you the best.
The following are the similarities between NSC and PPF.
|Basis of Difference
|National Savings Certificate (NSC)
|Pubic Provident Fund (PPF)
|Encourage short to medium-term savings
|Encourage long-term savings
|Rs 1.5 lakhs per annum
|Frequency of investment
|Only once during account opening
|Yearly, at least once
|Single and joint accounts are allowed
|Only single account holder
|Number of accounts
|Self, joint holder, or guardian in case of a minor
|Self or guardian in case of a minor
|Paid at the time of maturity, compounded annually, 7.7% per annum.
|Paid every year on 31st March, 7.1% per annum.
|Five years can’t be extended
|15 years, can be extended in blocks of five years
|Lock in period
|Allowed from 7th year onwards
|Loan against investment
|Given up to 80-90% of the investment amount
|Given only between 3rd and 6th year, up to 25% of the maximum amount
Comparing NSC to PPF is like comparing apples to oranges. Both schemes are government schemes that fulfil two different investment purposes. PPF is a long-term investment scheme and can fulfil goals such as retirement or a child’s college education. NSC, on the other hand, is a short-term investment scheme and can fulfil short-term goals such as a house down payment or travelling.
You must select your investment based on your goals, investment horizon, and risk tolerance levels. NSC and PPF pay fixed interest and hence are risk-free investments. Hence, it’s up to you to choose which investment suits you the best based on your goals. You can also invest in both to fulfil your short and long-term goals and diversify your investment portfolio.
NSC and PPF are two different government investments that fulfil different investment goals. NSC is for short-term goals, whereas PPF is for long-term goals. Hence, based on your goals and investment tenure, you must choose the one that best suits you.
Fixed deposit rates vary from 3% to 8% based on the tenure and bank. On the other hand, the NSC interest rate is fixed at 7.7%. Before you invest in an FD or NSC, you must check the interest rate for your tenure and choose the one that gives you a higher interest rate.
PPF is an excellent tax-saving investment. However, it has a lock-in period of 15 years and pays only a fixed interest of 7.1%. There is another tax-saving investment that has the potential to give higher returns, and it is ELSS funds. ELSS or Equity Linked Savings Schemes (ELSS) are tax-saving mutual funds with a lock-in period of 3 years. Since they invest in the equity markets, they can give higher returns than PPF in the long run. However, they are subject to market volatility and can result in losses in the short term.
NSC is a government scheme that pays a fixed interest. Hence, it is a risk-free investment.
Although PPF is a good long-term investment scheme, it has several disadvantages. It has a lock-in period of 15 years, the maximum investment is only Rs 1.5 lakhs per annum, the interest rate is lower than equity market returns, has strict early withdrawal rules, and premature closure of the account if not possible.
No, you can partially withdraw your investment in PPF after completing six years from the date of investment.
Yes, you can invest a lumpsum amount in PPF. Alternatively, you can invest monthly, quarterly, or even at irregular intervals during the year.