The Public Provident Fund (PPF) and National Savings Certificate (NSC) have been around for quite some time. Both these savings schemes make for good investments and give you safe returns as they are backed by the government. But which one is the better bet you may wonder.
Both are attractive investments as they come under Section 80C of the Income Tax Act and offer different tax benefits. The tax threshold for both is capped at Rs. 1, 50,000. You could also avail a loan using both PPF and NSC.
Additional Reading: Benefits Of Investing In A Savings Scheme
Saving with a PPF account
The PPF savings scheme was started in 1968 by the Ministry of Finance in India. The interest earned on deposits under this scheme are not taxable. Also, deposits made towards PPF accounts can be claimed as tax deductions. The aim of PPF was to encourage people to build a retirement corpus. The current interest rate for PPF is set at 7.8% (1st July – 30th September 2017). Here are some of the key features of a PPF account:
- Interest Rate, tenure, and extension: With a 15-year deposit period and a 5-year extension, a PPF serves as a long term investment. Interest rates are annually compounded, with the current rate being 7.8%.
Additional Reading: PPF Returns Fall To 7.9%: What To Do
- Initial investment/deposit: You will need Rs. 100 to open the account.
- Annual deposit amount: Rs. 500 per annum; Maximum amount – Rs. 1,50,000 per year.
- Deposit frequency: A deposit has to be made every year, for 15 years to keep the account active. Failure to make the minimum annual investment will render the account inactive.
- Withdrawals: A partial premature withdrawal can be made every year starting from year 7. However, these withdrawals are subject to conditions. Complete withdrawals can only be made at maturity.
Additional Reading: All About Prematurely Closing a PPF Account
- Tax advantages: Interest earned on this is tax free under Section 80C of the Income Tax Act. And withdrawals are exempt from wealth tax too.
- Nomination: This facility is available while opening the account or after doing so.
- Fund Transfer: The funds or the account cannot be transferred between people, but, they can be easily transferred between bank branches or post offices for no charge.
- Loan facility: You can avail a loan against the funds held in your PPF account starting from the third financial year of your investment.
- A great tool for retirement planning that is best suited for salaried people.
- Easy access: Head over to a public bank, post office, or select private banks to open a PPF account. Online services are also available.
- One person, one account only. Which means joint accounts are not allowed.
Additional Reading: Looking To Invest In PPF? Here’s What You Need To Know
Investing in an NSC
The NSC started way back in the 1950s by the Government of India in order to raise money to help and fund the development of a new and independent India. These are issued by the post office and can be availed from any branch of the Indian Postal Service. This savings scheme is slightly different from the PPF scheme because when you buy an NSC you buy a specific amount which is considered as your investment. However, these denominations are designated by the government.
Once the investment has been made, it’ll earn interest based on the rates associated with the type of certificate bought. The maturity date for these certificates are set at 5 years from the date of purchase but the interest is calculated on a yearly basis. The interest is paid to the certificate holder only on maturity, and, the interest earned is also reinvested in the NSC itself. Here are some of its key features:
- Interest rate: An NSC has a short maturity period of just five years. Interest rates are compounded half-yearly. The current rate on a 5-year NSC is 7.9%.
- Minimum amount: Rs. 100 per annum; Maximum amount – no limit.
- Denomination: You can buy NSCs in multiples of Rs. 10,000, Rs. 5,000, Rs. 1,000, Rs. 500 and Rs. 100 only.
- Interest earned: Interest that gets accrued every year is deemed to be reinvested under Section 80C of the Income Tax Act.
- Ownership: An NSC can be taken individually, jointly and also on behalf of a minor. However, since this product is meant for individuals, groups of people like companies, trusts, or Hindu Undivided Families (HUF) cannot invest in them.
- Encashment: An NSC certificate can be encashed at the post office where they were issued. But, in certain cases if the holder provides sufficient evidence that he/she is entitled to the proceeds then they can be encashed at any post office branch across the country.
Additional Reading: Everything You Need To Know About National Savings Certificates
Named NSC Issue VIII, the aim is to provide an investment avenue for those people who are looking for a way to invest in safe instruments and avail tax benefits at the same time. The certificates issued under this version are available to everyone except an HUF and a trust. These certificates come in denominations ranging from Rs. 100 to Rs. 10,000 but have an interest rate that is slightly lower than the once offered for Issue IX.
Both PPF and NSC have their own benefits, but if you are looking for a long-term investment, PPF is definitely the one to go for. You can always keep adding money to your PPF account to boost your investment.
For example: If you invest the maximum amount in a PPF, i.e. Rs. 1,50,000, your amount multiplies to approximately Rs. 45,00,000 after 15 years. And all that money is tax free!
Additional Reading: 7 Things You Should Know About PPF
However, if you expect some heavy expenses over the next five years, it would be advisable to opt for an NSC as the lock-in period is shorter.
These are just two options out of a myriad of savings schemes out there. Choosing the right one solely depends on your needs and requirements. In any case, don’t hesitate! Start saving now and secure your financial future.
Good explained differentiation between PPF & NSC.
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