PPF vs NSC: Which one to choose?
19 Feb 2025

In India, Public Provident Fund (PPF) and National Savings Certificates (NSC) are popular options for tax-saving investments.

Both government-backed, they provide secure avenues with attractive interest rates.

However, choosing the right one can be tricky as they cater to different financial goals and come with their own set of rules.

This article delves into their key features, advantages, and drawbacks to help investors make an informed decision.

Understanding PPF: Features and benefits
PPF basics

The Public Provident Fund (PPF) is a long-term savings scheme with an interest rate of approximately 7% to 8%, compounded annually.

Its major draw is the tax benefit under Section 80C of the Income Tax Act, which permits deductions up to ₹150,000 per annum.

A PPF account has a maturity period of 15 years, extendable in five-year blocks.

The minimum annual investment is ₹500, and the maximum is ₹150,000.

NSC at a glance: What you need to know
NSC insights

National Savings Certificates (NSC) provide a relatively high interest rate of around 6.8%, compounded annually but payable at maturity.

Investments up to ₹150,000 in NSC are eligible for tax deduction under Section 80C.

NSCs have a fixed five-year maturity period.

There is no limit on the investment amount, which is great for anyone investing more than ₹150,000 without needing additional tax benefits.

Liquidity comparison: Accessing your funds
Liquidity factor

One key distinction between PPF and NSC pertains to liquidity.

In financial emergencies before maturity, PPF offers greater flexibility. Partial withdrawal from a PPF account is permitted from the third financial year onward, and loans against it can be obtained from the third to sixth financial year.

Conversely, while NSCs do not provide premature withdrawal options, they can be pledged as collateral for loans from banks, imparting some liquidity.

Tax implications: Beyond Section 80C benefits
Tax matters

Both PPF and NSC provide Section 80C tax benefits on investments.

PPF interest is tax-free at maturity, making it attractive for those looking for exempt-exempt-exempt investments.

On the other hand, while NSC's interest is taxable annually, it offers a deduction for reinvested interest under Section 80C, except in the final year.

Choosing between PPF and NSC: Factors to consider
Decision drivers

The choice between PPF and NSC depends on your individual financial objectives, investment time frame, liquidity requirements, and tax planning needs.

If you are aiming for long-term wealth accumulation with tax-free returns and require some liquidity, PPF is your best bet.

If you are more interested in shorter-term investments or want to invest more without additional tax benefits, NSC may be a better choice.