When it comes to securing your financial future, two popular options in India are the Public Provident Fund (PPF)and the National Savings Certificate (NSC). Both are government-backed schemes that offer safe and reliable returns, but they have distinct features that cater to different investment goals. Understanding the specifics and benefits of PPF and NSC can help you decide which one might be the better choice for your financial planning.
What is the meaning of PPF?
The Public Provident Fund is a long-term savings scheme launched by the Government of India to encourage small savings.
It has a tenure of 15 years and offers a secure way to build a substantial corpus, combining the benefits of tax deductions under Section 80C, tax-free interest and government-backed safety. PPF currently offers a competitive interest rate of 7.1% per annum, which is revised quarterly. Contributions can range from ₹500 to ₹1.5 lakh annually, making it a risk-free and popular choice for conservative investors.
What is the meaning of NSC?
The National Savings Certificate is a government-backed savings instrument designed for individuals seeking a secure, medium-term investment option.
It has a 5-year lock-in period and offers a fixed interest rate of 7.7% per annum, which is periodically revised by the government. Contributions to NSC are eligible for tax deductions under Section 80C, though the interest earned is taxable. There is no maximum investment limit, but the Section 80C deduction is capped at ₹1.5 lakh annually.
Differences between PPF and NSC
| Criteria |
PPF |
NSC |
| Investment duration |
15 years (with an option to extend in blocks of 5 years) |
5 years |
| Interest rates |
7.1% per annum (compounded annually, tax-free) |
7.7% per annum (fixed, taxable) |
| Tax implications |
EEE (Exempt-Exempt-Exempt): Contributions, interest earned and maturity amount are tax-free |
Contribution eligible for Section 80C deduction; interest is taxable |
| Liquidity |
Low: Partial withdrawals allowed after 7 years; loans available against the balance |
Moderate: 5-year lock-in; can be used as collateral for loans |
Which is better to invest in: PPF or NSC?
Choosing between PPF and NSC depends on your financial goals and investment horizon. If you are looking for a long-term, tax-efficient investment with decent returns and safety, you may opt for PPF. Its 15-year lock-in period is ideal for long-term goals, and the tax-free interest makes it a compelling choice for those in higher tax brackets.
On the other hand, if you have a medium-term goal and can benefit from a slightly higher interest rate, NSC might be more suitable. Although the interest is taxable, the shorter tenure and higher liquidity can be advantageous for those who might need access to their funds within 5 years.
- Choose PPF if you have a long-term horizon, need tax-free returns and are planning for goals like retirement.
- Choose NSC if you have a medium-term goal, prefer a higher fixed interest rate, and don’t mind paying taxes on the interest earned.
Also Read: How to Check PPF Balance: A comprehensive guide
Conclusion
Both PPF and NSC are excellent investment options for those seeking safe, government-backed schemes. Your choice should be guided by your financial objectives, investment horizon and tax planning needs.
Investing in PPF via Axis Bank is simple - you can easily open a PPF Account and manage your investments online. Additionally, you can use the PPF Calculator to make more nuanced and effective financial planning decisions for your future. Consider your requirements carefully to make the best decision for your financial security.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision
