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

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

WEALTH TAX

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...

How to Pick Top Performing Mutual Fund Schemes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...
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