Mutual Fund vs NSC: Which can produce higher returns on Rs 7,50,000 investment in 5 years?
Compare Mutual Funds and NSC to determine which can provide more return on a Rs 7.5 lakh investment over 5 years. Analyse returns, risks and tax benefits.
ZeeBiz WebTeam | Jan 07, 2025, 02:07 PM IST
A Mutual Fund pools money from multiple investors to invest in stocks, bonds or other securities, offering professional management and potential for high returns, albeit with varying risks. The National Savings Certificate (NSC), a government-backed scheme, provides fixed returns at a 7.7% interest rate compounded annually. While NSC ensures safety and tax benefits under Section 80C, mutual funds offer diversified investments and higher growth potential.
1/10
Interest Rates and Maturity
- NSC offers a 7.7% annual interest rate, compounded yearly but payable at maturity after 5 years.
- Mutual fund returns vary based on market performance, offering potentially higher returns over the same period.
2/10
Investment Amount and Limits
- NSC: Minimum investment of Rs 1,000 with no maximum limit.
- Mutual Funds: Minimum investment depends on the scheme, typically starting at Rs 500 or Rs 1,000.
3/10
Tax Benefits
- NSC: Investments qualify for deductions under Section 80C of the Income Tax Act.
- Mutual Funds: Only ELSS (Equity Linked Savings Schemes) provide Section 80C benefits.
4/10
Returns on Rs 7.5 Lakh Investment (5 Years)
- NSC: Total value of Rs 10,86,775 with an estimated return of Rs 3,36,775.
- Mutual Funds (lump sum): Total value of Rs 13,21,756 with an estimated return of Rs 5,71,756 (market-dependent).
5/10
Liquidity and Premature Closure
- NSC: Low liquidity, with premature closure allowed only under specific conditions (death of account holder, court order, or forfeiture).
- Mutual Funds: High liquidity, allowing redemption at any time, subject to applicable exit loads.
6/10
Risk Factor
- NSC: Low-risk investment with government backing.
- Mutual Funds: Risk levels vary from low (debt funds) to high (equity funds) based on the fund type.
7/10
Professional Management
- NSC: No active management, as returns are fixed.
- Mutual Funds: Managed by professional fund managers who aim to maximize returns.
8/10
Diversification
- NSC: No diversification; funds are locked in a single scheme.
- Mutual Funds: Diversified across various securities like stocks, bonds, or industries, reducing overall risk.
9/10
Target Audience
- NSC: Suitable for conservative investors seeking safe and fixed returns.
- Mutual Funds: Ideal for investors with varying risk appetites aiming for potentially higher returns.
10/10
Mutual Fund vs NSC
- Choose NSC for guaranteed returns and tax benefits without market risk.
- Opt for Mutual Funds to leverage market growth and achieve higher returns, keeping in mind the associated risks.