Lump sum Mutual Fund vs NSC: Which can produce higher return on Rs 5,50,000 investment in 5 years?
Comparing lump sum investments in mutual funds and NSC? This article breaks down their returns, risks and benefits over five years.
A mutual fund pools money from investors and invests in stocks, bonds or other assets, offering professional management and diversification. National Savings Certificates (NSC) is a government-backed fixed-income investment with guaranteed returns. Both options cater to different risk appetites—mutual funds offer market-linked returns, while NSC provides stability. If you’re considering a lump sum investment of Rs 5.5 lakh for five years, this article compares expected returns, benefits and risks.
Understanding Mutual Funds
Mutual funds pool money from multiple investors and invest in stocks, bonds, or short-term debt. Investors buy shares, each representing part ownership of the fund’s portfolio.
Why investors choose Mutual Funds?
- Professional Management – Experts handle investment decisions.
- Diversification – Spreading investment across sectors reduces risk.
- Affordability – Low initial investment requirements.
- Liquidity – Easy redemption at Net Asset Value (NAV).
Benefits & risks of Mutual Funds
- Ways to Earn: Dividend payments, capital gains, and NAV appreciation.
- Risks: Market fluctuations can affect returns; past performance does not guarantee future gains.
Types of Mutual Funds
- Money Market Funds – Low risk, short-term investments.
- Bond Funds – Higher risk, potential for better returns.
- Stock Funds – Includes growth, income, index, and sector-specific funds.
- Target Date Funds – Adjusts investment mix over time.
Returns on Rs 5.5 lakh investment in Equity Mutual Funds
- Expected Return: 12% per annum
- Total Interest Earned: Rs 4,19,288
- Final Amount: Rs 9,69,288
Returns on Rs 5.5 lakh investment in Hybrid Mutual Funds
- Expected Return: 10% per annum
- Total Interest Earned: Rs 3,35,781
- Final Amount: Rs 8,85,781
Returns on Rs 5.5 lakh investment in Debt Mutual Funds
- Expected Return: 8% per annum
- Total Interest Earned: Rs 2,58,130
- Final Amount: Rs 8,08,130
Understanding National Savings Certificates (NSC)
- Interest Rate: 7.7% (compounded annually, payable at maturity)
- Lock-in Period: 5 years
- Tax Benefits: Eligible under Section 80C of the Income Tax Act
NSC returns on Rs 5.5 lakh investment in 5 years
- Principal Amount: Rs 5,50,000
- Total Interest Earned: Rs 2,46,969
- Final Amount: Rs 7,96,969
Which investment option offers better returns?
- Equity Mutual Funds (12% return): Rs 9,69,288
- Hybrid Mutual Funds (10% return): Rs 8,85,781
- Debt Mutual Funds (8% return): Rs 8,08,130
- NSC (7.7% return): Rs 7,96,969