Sukanya Samriddhi vs. PPF: How to choose the right investment option for your girl child?

Compare between Sunkanya Samriddhi and PPF and evaluate which one should you opt for to secure your daughter's future.

Sukanya Samriddhi vs. PPF How to choose the right investment option for your girl child

Securing the future of their children has always been a top priority for parents. If it’s a daughter, most Indian couples start planning for her education and wedding almost from the day she is born. However, they are often unable to decide where and how much to invest for the best possible returns. 

Let’s take an example. Until recently, Public Provident Fund (PPF) was seen as one of the best-fixed return investment avenues as the returns are completely tax-free. However, over the last few years, dedicated investment schemes for the girl child – such as Sukanya Samriddhi Yojana (SSY) – have been launched.

As both these schemes share many similarities, the task of choosing between the two has become tougher for parents. This article will help you objectively evaluate both schemes.

Public Provident Fund

Apart from saving tax, the PPF scheme offers one of the best interest rates among fixed investment options. The current rate of interest is 7.1%, which is considerably higher than bank fixed deposits (another instrument that is very popular with Indian investors).

PPF offers liquidity by way of partial withdrawals after the sixth year. No tax is applicable on partial withdrawals or at maturity after 15 years. What’s more, a PPF account can be opened with a minimum investment of Rs 500, which puts it within reach of most people. The maximum amount that can be invested is Rs 1.5 lakh per year and the maturity period is 15 years. Opening a PPF account for your child? Here’s what you need to know.

Related: Five recent changes in PPF rules you should know

Sukanya Samriddhi Yojana 

In 2015, the Central government launched the Beti Bachao, Beti Padhao programme aimed at promoting the health and financial welfare of the girl child. The SSY small savings scheme is a key part of this initiative and provides guaranteed returns to investors. It offers 7.6% interest on a minimum annual investment of Rs 250 on behalf of a girl child. The upper limit is Rs 1.5 lakh per year.

The only condition is that the child should be under 10 years old. Those with two daughters are eligible to open two separate SSY accounts. As far as tax benefits go, SSY account holders can claim a maximum deduction of Rs 1.5 lakh under Section 80C. Returns are tax-free, including interest income and maturity value. SSY matures when the beneficiary attains 21 years of age.

So, which one is better?

For parents, Sukanya Samriddhi Scheme is likely to be the obvious choice for a variety of reasons. Firstly, while the tax benefits are almost the same, SSY offers 0.5% higher returns. On this count, SSY outperforms every other fixed-income instrument, including PPF, NSC and fixed deposit. More importantly, SSY is a dedicated investment scheme for the girl child. An account can be opened at any time as long as the child is below 10 years of age. Unlike other investment options, there is no facility to extend an SSY account, which is automatically closed at maturity.

On the other hand, PPF is open to any person regardless of gender and is meant to provide a stable income after retirement. It has a lock-in period of 15 years, which can be further extended every 5 years. So, the advantages of each scheme are relative to the investment objective of the investor.

For a minimum sum of Rs 1000, an SSY account offers compounded annual returns of 8.4%. Though the interest rate is revised annually, it is an extremely competitive investment option. Partial withdrawals are possible without any penalties or tax obligations. Moreover, if an SSY account is not closed on maturity, interest continues to be paid to it.

Related:  Top 7 fixed-income investments in India

Diversification and long-term returns

It is advisable to have a back-up option when investing. This applies to fixed income instruments such as SSY and PPF as well. After all, interest rates are subject to change and it is difficult to predict when they may be cut further. Diversification can help investors negate the inherent disadvantages of each and get better returns over a period of time. For example, since there is no reinvestment option available under SSY, PPF can be leveraged to provide returns over the long term. 

However, it is important to remember that both SSY and PPF are meant to serve different purposes. While SSY is meant to provide for the needs of a girl child, PPF is oriented towards providing retirement income. So, it makes sense to also include equity mutual funds in one’s portfolio to beat the effects of inflation. For example, an SIP of Rs 6000 per month for a period of 18 years can help a family build a corpus of almost Rs 50 lakhs at the rate of 12% annualised returns. 

For short-term education-related expenses, debt mutual funds can be an ideal option. These funds invest in government bonds and corporate stocks, which are comparatively more stable and provide steady returns of up to 5%-7%. Finally, a term insurance plan can provide greater security for girl children in case of the sudden death of their parents. PPF or mutual funds? Which one to invest in for your child’s education?


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