I want to invest money in either a PPF (Public Provident Fund) or NSC (National Savings Certificate) scheme, but I would like to understand the differences between them.
I believe you are talking about Public Provident Fund and National Savings Certificate schemes in India.
PPF -> Deposit money -> If you want to take a loan after 3 years, you can take out 25% of the balance in your PPF account.
NSC -> Money locked for 6 years and can only be encashed after 3 years, you cancel your deposit and encash all your money.
Money is safe in both cases, because they are secured by the Indian government. But interest(8.75% at present for both in 2014-15 financial year) is compunded anually for PPF, but half yearly for NSC. So you get a higher interest rate in case of NSC. So if you can lock in your money, without any need for withdrawls, choose a NSC for higher returns.
Tax rebate wise, both are same.
The PPF and NSC can broadly be compared as below;
PPF is public provident scheme with initial period of 15 years and can be extended by 5 yrs blocks. There is a minimum investment of Rs 500 every year and a maximum of Rs 1,50,000 per year for 2014-15 financial year. The gains from PPF are also exempt from any and all capital gains tax.
NSC is like fixed deposits for a period of 6 years. They can be purchased from Post office in multiples of Rs. 100, Rs. 500, Rs. 1,000, Rs. 5,000 & Rs. 10,000. There is no maximum limit of purchase, however tax rebate is only to the extent of Rs 1,50,000 on 2014-15 financial year.
Interest Rate: Both currently offer 8.75% interest rate. Incase of PPF the interest rate is declared every year and is applicable to the entire invested corpus. In case of NSC, the interest is fixed for the tenure of the investment, changes in interest are applicable for next investments. The interest is compounded
- The PPF can be opened in any nationalized banks. It comes with a passbook to record the deposits and interest (and withdrawals if any).
- The NSC certificates are purchased from Post office. These certificates have to be kept securely as withdrawal is not possible without producing them.
Withdrawals: In PPF the first withdrawal is possible in the 7 years, for 50% balance of the 4th year and like wise for subsequent years. In NSC there is no premature withdrawal, however one can get loan from Banks by Hypothecation of the certificates.
Tax Benefits: Both PPF and NSC enjoy tax benefits under 80C. However the PPF follows what is called an EEE regime, under which the Investment is exempt from tax, the interest accrued is exempt from tax and the withdrawal is also exempt from tax. The NSC however only the investment is exempt from tax, the interest earned has to be shown as income and would be treated as invested. On withdrawal, the interest would be taxed accordingly.
The best benefit of PPF account cannot be attached by court of law in case one comes under financial liability. IE the money in the PPF account can only be used by you.
Hence it would make more sense to invest in PPF