NSC Vs NPS: Which Suits You Best And How To Choose One?

• Both NSC (National Savings Certificate) and NPS (National Pension System) are safe investment options backed by the Government of India. 

• They cater to different goals, with NSC providing fixed and short-term returns and NPS being suitable for long-term retirement planning.

• NSC is a low-risk, fixed-income scheme offering stable, guaranteed returns. 

• NPS comes with market-linked returns and higher risk, but it also has the potential for greater long-term growth thanks to equity exposure.

When saving for the long term, you have a number of ways to multiply your money while ensuring that it remains secure. In India, two of the most well-liked options are the National Savings Certificate (NSC) and the National Pension System (NPS). 

Both are government-backed investment schemes, each with distinct advantages for various categories of investors. In order to make the right decision for your plans, it's essential to know all about NSC vs NPS.

The National Savings Certificate (NSC) is a savings bond scheme designed to encourage small to mid-income investors to save. It also offers the benefit of income tax deductions under Section 80C.

Here are some key features of NSC:

• Interest Rates: NSC offers a fixed annual interest rate, which is updated quarterly by the government. 

• Maturity Period: The NSC scheme now only offers a 5-year tenure, following the discontinuation of the 10-year option (NSC IX Issue) in December 2015.

• Investment Flexibility: You can start investing in NSC with as little as ₹100, making it accessible to a wide range of investors. Additionally, there is no upper limit on how much you can invest.

• Nomination: The scheme allows you to nominate a family member, even a minor, to inherit the certificate in the event of your death. 

• Corpus on Maturity: Upon maturity, you will receive the total corpus, which includes both the principal amount and the accumulated interest.

The National Pension System (NPS) is a voluntary retirement savings scheme designed to help individuals build a pension fund through regular contributions. It aims to provide financial security during retirement by allowing subscribers to save systematically.

Take a look at some key features of NSC:

• Liquidity and Flexibility with Two Account Types: The NPS offers two account types for systematic investments

1. Tier-I Account: This is a pension account with withdrawal restrictions. You can open it with a minimum deposit of ₹500.

2. Tier-II Account: A voluntary account offering liquidity, allowing you to invest and withdraw funds. The minimum deposit is ₹250, but you must have an active Tier-I account to open this account.

• Option for Partial Withdrawal: NPS offers you the option for partial withdrawals, giving you access to your savings before retirement in case of emergencies. You can withdraw up to 25% of your contributions from the Tier-I account.

However, to use the partial withdrawal facility, you must have contributed for at least 10 years, and there must be a minimum gap of 5 years between two consecutive withdrawals.

• Flexibility of Investment via Two Different Options: NPS offers you the flexibility to choose between two investment options:

1. Auto Choice: This is the default option, where a fund manager automatically manages your investments based on your age profile.

2. Active Choice: With this option, you have the freedom to select from the available asset classes to decide where to invest your funds.

Differences Between NSC and NPS

Check out the table below to understand all about NSC vs NPS:

Both NSC and NPS have unique benefits based on what you're looking to achieve and your risk tolerance. If you're looking for a low-risk, guaranteed return in the short term, NSC is best. But if you're saving for long-term retirement and can handle market risk for possibly better returns, NPS may be the ideal option.

1. Which offers higher returns: NSC or NPS?

Generally, NPS offers higher returns than NSC due to its investment in equities, which can provide greater growth over time. However, NSC offers fixed, government-backed returns with lower risk, making it more stable but with lower potential returns.

2. Can I hold both NSC and NPS at the same time?

Yes, you can hold both NSC and NPS simultaneously, as they are separate investment options with different benefits.

3. How often are NSC interest rates revised?

The Indian government revises the interest rate of NSC every quarter.

4. Does NPS allow partial withdrawals?

You can request a partial withdrawal only if you have been an NPS subscriber for at least 3 years from the date of joining the scheme.

5. Which scheme is better for retirement planning: NSC or NPS?

For retirement planning, NPS is generally the better option compared to NSC since it is specifically designed to help you build a retirement corpus.

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