Everyone has their own choices for saving and investing, but if there is one thing we are cautious about, it is the fact that we do not want to drain our hard-earned money in any way. But saving and investing is tougher than it used to be a few decades ago. Want to know why? Because a few years ago we did not have as many options as we have today. A lot of options come with a lot more confusion on finding the best. But if you want to know the best for you, this is where you can find it. Firstly, let us understand each of the attributes, PPF, NSC, and SIP.
What is SIP?
A systematic Investment Plan (SIP) is a Mutual Fund investment method through which one can invest a specified amount in a Mutual Fund scheme at regular intervals, such as once a month or once a quarter, rather than making a lump-sum investment. The monthly sum, which is akin to a recurring deposit, could be as low as INR 500 every month.
For example, you cannot invest in an SBI MF with a few thousand in one shot, tightening the ends on your monthly budget. Instead, you can invest in an SBI SIP and every month contribute as low as Rs.500, keeping you financially on track and also investing. It's convenient because you may direct your bank to debit the amount every month.
What is NSC?
National Savings Certificates (NSC) are an Indian Government savings bond that is generally utilized for small savings and income tax saving investments in India. It is a part of India Post's postal savings system. These can be acquired from any Post Office in India by an adult (either in his or her own name or on behalf of a juvenile), a minor, a trust, or two adults acting jointly. These are issued for five and 10-year maturities and can be pledged as security to banks in order to obtain loans. The holder is entitled to a tax break under Section 80C of the Income Tax Act of 1961.
What is PPF?
In India, the Public Provident Fund (PPF) is a savings-cumulative-tax-saving vehicle launched in 1968 by the Ministry of Finance's National Savings Institute. The scheme's goal is to encourage small saves by providing an investment with reasonable returns paired with income tax benefits. The Central Government firmly backs the scheme. The balance in a PPF account is not subject to attachment under any court order or decision. Income Tax and other government agencies, on the other hand, have the authority to attach the account in order to recoup unpaid taxes.
What is the Best Saving Option for You?
Everyone has their own set of financial goals to meet. So what are yours? Let me make this a bit more simple. Each of these schemes has its own set of features, benefits, and drawbacks. If you are someone who wants to spend small amounts every month, you can choose a SIP and start small. If you are looking into tax benefits and cutting down taxes on your profits, then PPF would be the choice. The end line comes to you knowing each of the schemes better, to analyze and come up with what your financial objectives are asking for. So let us understand each of the schemes in depth.
Major Features of Each Option
Features of a SIP:
- It is systematic and organized. If you choose sip, you can invest in it on a weekly, monthly, or quarterly basis, according to the program. The organization of using money and distributing it with interest is the cornerstone of mutual funds. Fixed sums of money are debited into bank accounts on a regular basis by investors in the sip and then invested in certain mutual funds.
- It has the potential of compounding. Are you seeking a secure but rewarding investment? Due to the compounding interest effect, SIP has the potential to grow to a significant amount over time, even with a small, regular contribution. Compounding is a scenario in which the interest collected is reinvested back into the mutual fund for increased returns. The compounding effect increases the rewards and investments for the long term through the sip.
- You can stop anytime you want. One of the most significant advantages of investing in SIP is the ease with which it is possible to terminate the SIP plan at any time. When the SIP is terminated, the investor has the option of returning to the original investment amount or continuing to invest in the mutual fund of their choice.
- The payments are small. One of the many key advantages of investing in SIP is that it allows investors to pay in small denominations. To put it simply, SIP accepts investments in denominations of 500 and 1000 only, and once the initial investment of 500 is made, investors can pay in higher denominations of 1000 from the next payment onwards.
Features of PPF
- It is a long-term saving scheme. A PPF account must be held for a minimum of 15 years. The investor, on the other hand, has the option of extending the length by a 5-year block. There are no further investments required for the extension.
- It is entirely risk-free. The Public Provident Fund PPF is supported by the Government of India. As a result, it is one of the most secure investment solutions available to consumers. PPF provides assured risk-free profits. It also protects your capital. As a result, the risk associated with PPF investments is negligible.
- You can also nominate. The investor can choose to appoint a nominee for their account. They can do so either when they open the PPF account or later.
- You can get a loan against your PPF. Investors can borrow against their PPF account. They can, however, apply for the loan between the third and fifth years. The loan amount cannot be more than 25% of the total investments made at the conclusion of the second fiscal year. A loan can be obtained immediately from the bank's website.
Features of NSC
- It is a fixed rate of income. From January 1, 2019, an individual is entitled to receive a guaranteed annual return of 8%. They might enjoy the convenience of a consistent and reliable source of income.
- Originally, there were two variants of the National Savings Certificate. They were the NSC VIII and NSC IX issues. The NSC IX Issue was canceled by the government in December 2015. As a result, only the NSC VIII Issue is presently accessible for a subscription.
- There is a fixed time period. Currently, the investor has a maturity time of 5 years.
- You cannot withdraw early. Generally, the National Savings Certificate cannot be withdrawn early. However, in extraordinary instances, such as the investor's death or court order, they accept the same.
When you look at all three options, it is easier to find what is meant for you. All you need to do is analyze your budget and what you can afford to invest in. Typically, there is no 'best' among the three, as each one of them has its own pros and cons. Also, the best scheme for you will entirely depend on your financial goals.