NSC vs Lump Sum Mutual Fund: Which option can give higher returns on Rs 5 lakh investment

NSC vs Lump Sum MF: National Savings Certificates (NSC) is a guaranteed return, post office scheme with a lock-in period of five years. On the other hand, lump sum is an investment method in mutual funds, the performance of which is market-linked. In terms of return, both are quite different, but there is one similarity between the two options. In each of them, the investor makes a one-time investment. Both are used to make small-, medium-, and large-amount investments. While the NSC provides a 7.7 per cent annual compound interest rate, the return on a lump sum investment depends on the performance of equity, debt, or other investment options the scheme has invested its money in.

It may be much more than 7.7 per cent, but it may be less than that. In this write-up, we will compare what an investor may get on a Rs 5 lakh investment in each of the schemes.

Before that, know a bit more about both schemes.

NSC

The post office has a five-year lock-in period with a 7.7  per cent interest rate compounded annually but payable at maturity.

The minimum investment in the scheme is Rs 1,000, and in multiples of Rs 100.

There is no maximum limit for investment. The NSC account can be closed before five years under extraordinary conditions, such as the death of a single account holder or any or all the account holders in a joint account.

The NSC account can be transferred from one person to another under special circumstances, such as the death of the account holder or joint holder(s).

Mutual Fund lump sum

In a mutual fund scheme, the minimum deposit amount varies from one scheme to another.

There is no maximum limit.

The scheme offers compound growth, so the longer one stays in the investment, faster can be growth.

Lump sum investments can be done in all types of mutual funds such as equity, hybrid, and debt. 

What Rs 5 lakh investment can give in NSC and lump sum

On a Rs 5 lakh investment in NSC, the interest amount will be Rs 2,24,517, and the maturity amount will be Rs 7,24,517.

In an equity mutual fund scheme, where we can expect a return of 12 per cent return, the maturity amount on a Rs 5 lakh lump sum investment is estimated to be Rs 8,81,170.84.

In a hybrid mutual fund scheme, if we expect a 10 per cent return, a Rs 5 lakh investment can give an estimated return of Rs 3,05,255 and a maturity value of Rs 8,05,255.

On a debt mutual fund scheme, if we expect an eight per cent return, a Rs 5 lakh investment can give Rs 2,34,664.04 in return and Rs 7,34,664.04 in maturity.