1.5 ലക്ഷം രൂപ നിക്ഷേപിക്കാൻ പിപിഎഫ് അതോ എൻഎസ്സി? ഏതാണ് നിങ്ങൾക്ക് കൂടുതൽ ലാഭകരം?

PPF vs NSC: Which works better for someone investing Rs 1.5 lakh a year? Check out calculations

For someone who wants to save money without taking market risk, Public Provident Fund (PPF) and National Savings Certificate (NSC) are two familiar options. Both are government-backed small savings schemes, but they work quite differently. At present, PPF offers an interest rate of 7.1 per cent a year, while NSC offers 7.7 per cent. PPF interest is compounded annually, while NSC interest is also compounded annually and paid at maturity.

So, if a person has Rs 1.5 lakh to invest every year, should the money go into PPF or NSC?

The answer depends on whether the goal is long-term wealth building, tax-free returns, or having access to the money sooner.

PPF is meant for longer goals

PPF has a tenure of 15 years. An investor can put in a maximum of Rs 1.5 lakh in a financial year. The minimum annual contribution is Rs 500.

Suppose a person invests the full Rs 1.5 lakh every year for 15 years. If we assume the current 7.1 per cent rate remains unchanged and the money is deposited early each year, the corpus could grow to roughly Rs 40.7 lakh.

This is only an illustration because the PPF rate is reviewed from time to time and may change during the 15 years.

The big advantage of PPF is taxation. Interest earned in a PPF is tax-free, and the maturity amount also enjoys tax-exempt treatment under the applicable rules.

For someone saving for retirement, a child's education or another goal that is more than 10 years away, this long lock-in can actually help because the money is not easily spent.

NSC gives a higher current rate

NSC currently offers 7.7 per cent, which is higher than the PPF rate. Its tenure is five years, making it much shorter than PPF. The minimum investment is Rs 1,000, and there is no maximum investment limit.

If Rs 1.5 lakh is invested in NSC at 7.7 per cent, it can grow to roughly Rs 2.17 lakh after five years.

However, if you invest Rs 1.5 lakh in NSC every year, each year's investment is a separate five-year investment. This means the money will mature at different times.

For example, the NSC bought this year will mature after five years, while the one bought next year will mature a year later.

This can be useful for someone who wants money to become available gradually rather than having everything locked away for 15 years.

Tax treatment makes an important difference

Both PPF and NSC can qualify for the overall Rs 1.5 lakh tax-saving deduction for eligible taxpayers. However, this benefit is not available under the new tax regime. The treatment of interest is where PPF has an advantage.

PPF interest is tax-free. NSC interest, on the other hand, is treated as income. Interest that is deemed to be reinvested can qualify for the tax-saving deduction under the applicable rules, but it is still treated as income from other sources.

For someone in a higher tax bracket, this can reduce the benefit of NSC's higher headline interest rate.

Conclusion

If the aim is to build a large, tax-efficient corpus over 15 years or more, PPF may be the simpler choice. The tax-free interest is a major advantage, particularly for people in higher tax brackets.

NSC may suit someone who wants a shorter five-year commitment and prefers knowing that part of the money will become available sooner.

There is no need to treat it as an either-or decision either. A saver can use PPF for a long-term goal and NSC for money required after five years.

For someone investing Rs 1.5 lakh every year, the better option ultimately depends less on the small difference in interest rates and more on when the money will be needed and how important tax-free returns are.