PPF or NSC: Which one is better?

Public Provident Fund (PPF) and National Savings Certificate (NSC) are tax saving instruments offered to the taxpayers by the Government of India. So, if one has to choose between the two, which one is better? Let’s take a look on two parameters, liquidity and returns

Feb 12, 2017 08:02 IST India Infoline News Service

Public Provident Fund (PPF) and National Savings Certificate (NSC) are tax saving instruments offered to the taxpayers by the Government of India. So, if one has to choose between the two, which one is better? Let’s take a look on two parameters, liquidity and returns
 
Liquidity
 
On the liquidity front, the NSC is better than PPF because the lock-in period is 5 years, while the lock-in period of PPF is 15 years, extendable by a block of 5 years on maturity. However, an investor in PPF is allowed to take a loan on PPF and is also permitted to make partial withdrawals after five years from the date of initial investment.
 
Returns
 
Both PPF and NSC offer fixed returns that are comparable. Currently, NSC offers 8.5% and PPF offers 8.7%. However, in the case of NSC, the rate of return remains the same during the entire tenure of the investment. On the other hand, since PPF is an ongoing account in which a minimum deposit has to be made every financial year, the return on PPF account vary over time.

The interest in both cases is compounded on an annual basis. The interest earned on PPF is not taxed, which gives it an edge over NSC where the interest earned is taxed on maturity.

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