Public Provident Fund (PPF) and National Saving Certificate (NSC) are popular tax saving investment options for a risk-averse retail investor. But which of these two is is better for you? In this article, you will learn the key differences between the two options and also learn how to decide which one to invest in.


PPF vs NSC – What is the difference?

Tax Benefit Amount invested qualifies for tax-exemption under the section 80C of the Income Tax Act. Amount invested qualifies for exemption under the section 80C of the Income Tax Act. In addition, the interest received on the current NSCs will also qualify for tax-exemption under 80C.
Tax on Interest PPF is interest is completely tax free NSC is interest is taxable but tax is not deducted at source. You as an investor is responsible for paying the tax.
Interest Rate 8.7% for 2015-16

Interest rate fixed each year by the Government.

Compounding Period: PPF is compounded yearly.

8.5% for 2015-16

Fixed at the time of investment.

Compounding Period: NSC is compounded every six-months.

Lock-in Period PPF – Locked-in till the end of 15-years from the date of account’s opening. So if you had opened the account 10 years ago, then the lock-in period of the new investment will be 5 years. However, there are other options like partial withdrawal and loan, which may allow you to get back some money if needed. NSC – Locked-in for the 5 years from the date of investment.
Limit on investment PPF – Up to Rs 1,50,000 per year. NSC – No upper limit.
Ease of investing PPF – Relatively easy, as you can open a PPF account in major banks like SBI, ICICI and operate online. NSC – More cumbersome, as you have to physically visit a post-office at the time of investing and redemption.

Update: The present PPF rate is 7.6%.

PPF vs NSC – Which one is better for you?

When do you need the money back?
If you had opened your PPF account 10 years ago, then invest in the PPF account. Otherwise stick with NSC.

Are you willing to physically go to the Post-Office?
Going to a post-office in person can be quite a hassle. On the other hand, PPF can operated online.

An alternative: ELSS

Equity Linked Savings Scheme (ELSS) is type of a mutual fund that qualifies for tax benefit under section 80C of IT Act. Tax saving funds have become very popular with young working class because of multiple things. First, the lockin period of these funds is much lower than other instruments like PF or NSC certificates. Secondly, one gets to participate in the stock markets indirectly. You can check more details on ELSS here.


How much money can be invested in PPF?
In a financial year, you can invest any amount between 500 and 1.5 lakh rupees.

How many times can you invest during a year?
You can invest up to 12 times in a financial year. The total amount invested should not exceed 1.5 lakh in a financial year.

What is the tenure of a PPF account?
Once opened, a PPF account cannot be closed for 15 years.

What is the interest rate?
For the year 2015-16, the interest rate is 8.7%, compounded annually.

Who decides the interest rate? What is it based on?
Indian Government decides the interest rate. It is usually based on the interest rate of risk-free Government Bonds.

Is the interest fixed for the entire tenure?
Interest rate is not fixed. Government can change interest rate every year.

Who can open a PPF account?
Indian residents can open a PPF account.

How many accounts can be opened by an individual?
At any point in time, an individual can have only one PPF account.

Where can I open an account?
PPF account can be opened in nationalized banks, large private banks like HDFC and post offices.

Can I transfer a PPF account?
Yes, you can transfer your PPF account from one vendor to another. This is useful if you move to another city or town.

Can I have a PPF account with online-banking facility
Yes, large banks like SBI provide online banking facility for PPF accounts. You can make your annual investment through online transfers in a convenient way

What are the tax benefits of a PPF account?
There are two benefits (i) Investment in PPF comes under section 80C of Income Tax Act. (ii) Interest received is tax-free.

Can I get a loan on the PPF account?
Yes, you can get a loan. For more details visit 10 things to know about PPF loan facility

Can I close the account before end of the tenure?
No. The account cannot be closed before end of the tenure.

Can I do a partial withdrawal?
Yes. You can withdraw partially after the 6th year. For example, if you had opened the account in the financial year 2009-10, then you withdraw partially in the financial year 2015-16.

How many withdrawals can be made each year?
You can withdraw once per financial year.

Can a NRI hold a PPF account?
Yes, NRIs can hold on to an existing account that they opened when they were an Indian resident. They cannot open a new account after becoming an NRI.


Types of NSC available
There are two types – NSC VIII (5 year and 8.5% interest) and NSC IX (10 years and 8.8% interest).

NSC VIII is for five years
NSC IX is for 10 years.

Maximum and Minimum Investment
No upper limit.
NSC comes in fixed denominations of 100, 500, 1000, 5000 and 10000.
If you want to invest Rs 50000, then you will have to buy 10 certificates of Rs 10000 each.

Interest rate
NSC VIII – 8.5%
NSC IX – 8.8%

Is the interest taxable?
Yes. The interest paid is taxable at the hands of the investor.

Amount invested can save tax under section 80C of Income tax act.
In addition, interest received for past NSC investments also qualifies for tax benefit under section 80C.
For example, if you receive Rs 10000 as NSC interest, then you have to only invest Rs 1.4 lakh more to get maximum benefit of 1.5 lakh investment under section 80C.

It is one of the safest investment option available to an individual investor.
It is completely guaranteed by the Indian Government.

Who can buy?
Indian residents can buy. Trusts and HUF cannot invest.

Where can I buy?
You can buy them at designated post offices.

Tax-Deduction-At-Source (TDS)
No. Post office will not deduct tax at source.
You as a investor are responsible for paying any tax due on the interest received.

Loan facility
Yes, you can get a bank loan using NSC as a collateral.

Yes. It can be transferred to another person.

No. NSC cannot be pre-closed under normal circumstances.
However it will be closed in case of death of the holder.
It is safe to assume that money invested is locked-in for the entire duration.

Disclaimer: “Investors are advised to make their own assessment before acting on the information.”