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Sunday, 22 March 2015

National Savings Certificate (NSC), Equity Linked Savings Scheme (ELSS), Public Provident Fund (PPF): Choose The Best


FEATURES
NSC
ELSS
PPF
Tax Benefit
U/S 80C
Up to Rs 1.5 lacs      
Up to Rs 1.5 lacs
Up to Rs 1.5 lacs
Minimum Contribution
Rs 100
Rs 500
Rs 500
Return on Investment
8%
Variable
8% p.a
Tenure
5
3 years
15 years
Tax on Return
Taxable
Tax Free
Tax Free
Maximum Contribution Limit
No Limit
No Limit
Rs 1.5 lacs
Tax on Interest/Return
Taxable
Exempted
Exempted
Risk
Nil
Moderate
Nil

In the above chart you will see the comparison between National Savings Certificate (NSC), Public Provident Fund (PPF) and Equity Linked Saving Scheme (ELSS). But I will also discuss some more points about the respective investment options so that you can chose the best investment for yourself. Also read my previous articles on PPF, NSC and ELSS to have a better idea.





ADVANTAGES OF INVESTING IN NSC 
  • Rate of Return on Investment is fixed.
  • The tenure of Investment is much less than PPF.
  • Compounding of Interest is done Annually which is similar to PPF. 

DISADVANTAGES OF INVESTING IN NSC
  • Rate of return is slightly lower than PPF and definitely much less as compared to ELSS over longer duration.
  • The investment in NSC is eligible for Tax deduction U/S 80C. But the Interest received on maturity is Taxable.
  • Investment may ensure you fixed returns but may not be able to negate the impact of inflation.

ADVANTAGES OF INVESTING IN ELSS
  • Past performance has shown that ELSS does provide better return (compared to NSC and PPF) on investment in medium and long term range.
  • ELSS has a shortest lock in period of just 3 years unlike PPF and NSC.
  • Return and Investment in ELSS is exempted from Tax.
  • Does not have many riders on Investments apart from 3 year lock in period hence offers more flexibility.

DISADVANTAGES OF INVESTING IN ELSS
  • Rate of return is not assured and keeps on fluctuating as it is linked to Market Performance.
  • Involves more risk as compared to NSC and PPF.
  • Investment in under performing funds may ruin your returns.

ADVANTAGES OF INVESTING IN PUBLIC PROVIDENT FUND
  • Return on Investment is fixed and also higher as compared to some other schemes.
  • Return and Investment in PPF is exempted from Tax.
  • Carries less risk as compared to ELSS and since the interest rate is declared every year chances of earning higher interest always remains.

DISADVANTAGES OF INVESTING IN PUBLIC PROVIDENT FUND
  • Has a very long lock in period of 15 years.
  • Rate of return may not be able to counter the effect of Inflation.

THE BEST INVESTMENT OPTION

Each Investment has got its own vices and virtues. Individuals themselves need to decide on the best investment option for them. It should be based on their future needs, ability to take risk, financial requirements and availability of resources to accomplish their future goals.
However, in my opinion diversification of Investment is the best option. Since NSC and PPF are pretty similar to each other you can chose any one of them for investment (preferably PPF as return and benefits are viable) along with ELSS. This will help you to not only enjoy fixed return on Investment but also take advantage of market growth resulting in decent accumulation of funds.


Some people might be tempted to invest in Kisan Vikas Patra (KVP) but it is not a viable investment option in my opinion. (Will try and post about it in separate post)

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