Skip to main content

Should you invest in PPF or NSC?

Invest ELSS Online
 

The clock is ticking for Section 80C contributions—you have until March 31, the end of the financial year.

At first blush, it appears deceptively simple. Deciding on what to invest in might seem like one of those tasks that you should be able to knock off in 10 minutes— pick an investment, fill out the form, and submit a cheque. But some important decisions are embedded in those simple tasks: whether to choose the Public Provident Fund, or PPF, as against a National Savings Certificate, or NSC, for example.

To start off with, let's look at the investment trinity. There are three guidelines on which you must evaluate every single investment: risk, return, liquidity.

In the case of PPF and NSC, both are backed by the government and so score high on the risk parameter. You can be pretty sure of getting your money back.

On the liquidity front, there is a fair amount of disparity. Agreed, both have fixed tenures. But the NSC does show up in a more favourable light simply because of the lower lock-in period. The NSC VIII issue is for 5 years and the NSC IX issue is for 10 years.

PPF is much longer at 15 years and can even be extended by a block of 5 years on maturity. But worth noting is that after the third financial year, excluding the year of the deposit, an investor is allowed to take a loan on his investment. Partial withdrawals are permissible after the expiry of the fifth year from the date that the initial subscription is made.

They continue to diverge on the return front too. Of course, they both offer fixed returns which are set at the start of the financial year but the similarity ends there. In 2012-13, the rate as fixed by the Reserve Bank of India, or RBI, was 8.8% per annum for PPF. It then got upped to 8.7% per annum and stays there this fiscal. Currently the rate for NSC is fixed at 8.5% (NSC VIII) and 8.8% (NSC IX) per annum.

In the case of NSC, the rate of return is locked at the time of investment and during the tenure of the investment it remains insulated from any changes in rates. That is because once you buy a NSC, you cannot continue to add to that particular investment certificate. If you want to increase your exposure, you will have to buy another. In the case of PPF, it is an account and you can keep adding to it.

The return in both cases is compounded and handed over on maturity. A apparent distinction is that the return is compounded annually in the case of PPF, but half-yearly where NSC is concerned. Once again, it puts NSC in a good light but the tax benefit nullifies the effect.

Let's say that you invest Rs 1 lakh in a 10-year investment earning 8.8% per annum. If compounded annually, you would end up with Rs 2,32,428. But if compounded half yearly you would earn around Rs 4,000 more (Rs 2,36,597) over a decade. But like I said, the tax impact gives it a different complexion.

Both instruments qualify for a deduction under Section 80C of the Income Tax Act. The maximum limit under this section is Rs 1.50 lakh. You can choose to invest up to that limit in either of the two instruments or both. (Or any other instrument under Section 80C).

PPF offers you a deduction all the way and is known as EEE – implying exempt-exempt-exempt. What this means is that you get a deduction when you invest under Section 80C, the interest earned every year is exempt from tax, and the entire amount at maturity (principal + interest earned) is also exempt from tax.

Not so in the case of NSC where the interest is taxed. So as mentioned above, even though the return in NSC is compounded half yearly, the return is taxed which makes PPF a better tax-saving option but with a longer lock-in.

So how does one choose between the two?

If you already have a PPF account, you would know that you have to invest at least Rs 500 every year to maintain the account. In fact, you can invest up to 12 instalments in one financial year as long as the totality of investment does not exceed Rs 1.50 lakh.

The NSC is a one-time investment. The investment can start from as low as Rs 100 and there is no maximum limit. However, once you touch the limit under Section 80C (Rs 1.50 lakh), the investments in NSC do not qualify for a tax deduction.

So if you have an ongoing PPF account, it would be better to keep investing in it since it also offers great tax benefits. However, if you foresee an expense exactly 5 years down the road, then you could consider a NSC with that very tenure. If you need the money 10 years down the road, then it would be wise to consider an equity linked savings scheme, or ELSS. This is a mutual fund which offers a tax benefit under Section 80C. After it completes the mandatory 3-year lock in, you could sell the fund units whenever the stock market is rallying.

-----------------------------------------------
Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds

Top 10 Tax Saving Mutual Funds to invest in India for 2016

Best 10 ELSS Mutual Funds in india for 2016

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. Franklin India TaxShield

4. ICICI Prudential Long Term Equity Fund

5. IDFC Tax Advantage (ELSS) Fund

6. Birla Sun Life Tax Relief 96

7. DSP BlackRock Tax Saver Fund

8. Reliance Tax Saver (ELSS) Fund

9. Religare Tax Plan

10. Birla Sun Life Tax Plan

Invest in Best Performing 2016 Tax Saver Mutual Funds Online

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

-----------------------------------------------

Popular posts from this blog

Axis Mutual Fund NFO - Axis Fixed Term Plan Series 18

Axis MF has announced that the NFO period of Axis Fixed Term Plan Series 18 (15 Months) under Axis Fixed Term Plan Series 17 19 has been preponded from February 27 to February 24.        --------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.   Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)   Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications   These Application Forms can be used for buying regular mutual funds also   Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds ) HDFC TaxSaver ICICI Prudential Tax Plan DSP BlackRock Tax Saver Fund Birla Sun Life Tax Relief '96 Reliance Tax Saver (ELSS) Fund IDFC Tax Advantage (ELSS) Fund SBI Magnum Tax Gain Schem...

DSP BlackRock Mutual Fund Launches 2 Fixed Maturity Plans (FMPs)

  DSP BlackRock Mutual Fund has announced the launch of 2 Fixed Maturity Plans which are as follows:   Scheme    NFO Opening Date    NFO Closing Date DSPBR FMP - Series 4 - 3M   20-Jul-11   20-Jul-11 DSPBR FMP - 12M - Series 26   20-Jul-11   27-Jul-11       -----------------------------------------------------------------   Also, know how to buy mutual funds online:   1) DSP BlackRock Mutual Funds: http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html   2) Reliance Mutual Funds: http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html   3) Reliance Mutual Funds: http://prajnacapital.blogspot.com/2011/07/buying-hdfc-mutual-funds-online.html   4) Sundaram Mutual Funds: http://prajnacapital.blogspot.com/2011/07/buying-sundaram-mutual-funds-online.html   5) Birla Sunlife Mutual Funds: http://prajnacapital.blogspot.com/2011/06/buying-birla-sunlife-mutual-fu...

Personal Finance: How to move through Stock Market tough times!

If you have lost money, then have a hard look at your holdings. It is time to be patient ULTIMATELY, you cannot really lose money in the stock market! If you have, then either you have not been in the stock market long enough or you are in the process of getting the most expensive education. In the last 15 years, I have portfolios earning about Rs 5 lakh from share dividends alone against others who started with Rs 5 lakh and today owe the broker about Rs 3 lakh. When the markets, Sensex moved from 4,000 to 7,000 points, people thought it was a bubble and many sold out by the time it reached 12,000 points. A huge majority lost the run from 9k to 16k. Seeing their folly, many entered around 17-18k levels and in two months, saw their portfolios doubling. Greed peaked, speculation peaked and the fall shattered millions of dreams. Is there someone sitting on profits today? The answer is a resounding yes! Here are examples. HDFC was quoting at Rs 300 in 1999 and touched about Rs 3,000 earl...

Reliance Tax Saver Fund Online

Invest in Reliance Tax Saver Fund Online   ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saving Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) Fund 9. Religare Tax Plan 10. Birla Sun Life Tax Plan Invest in Best Performing 2016 Tax Saver Mutual Funds Online Invest Online Download Application Forms For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call --------------------------------------------- Leave your comment with mail ID and we will answer them OR You can write to us at PrajnaCapital [at] Gmail [dot] Com OR Leave a mis...

Mutual Fund Review: HDFC TAXSAVER

Investment Strategy: This fund focuses mostly on large cap stocks. In the past three years, large cap stocks on an average account for about 75% of the portfolio, midcap stocks account for about 15.5% of the portfolio, small cap stocks account for about 3.5% of the portfolio and cash holdings account for 5.0% of the portfolio. Banking, Pharmaceuticals, Information Technology, Oil Exploration and Electric Equipment are the important sectors for this portfolio. These five sectors have accounted on an average for 45.5% of the portfolio across the three year period and about 48% of the portfolio in 2010. Banking sector has never had an allocation of less than 15% in the past three years and continues to be the dominant sector in the portfolio. Exposure to the Electric Equipment sector has seen a drastic reduction in the past three years; the allocation has decreased from 13.5% of the portfolio allocation in December 2007 to 4.3% in December 2010. Asset Size: The fund's AUM is aro...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now