Best Investment Options For Your Girl Child: SSY vs Children’s Mutual Fund

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For parents, the future of their children is of the utmost importance. They sacrifice so many things in exchange for the happiness of their children. Two of the significant expenses that a parent of a girl child would have to bear is higher education and marriage. This needs long-term planning as they come at a considerable cost.

We have covered the following in this article:

What is Sukanya Samriddhi Yojana?

Sukanya Samriddhi Yojana (SSY) is a government offered investment cum savings scheme targeted at the parents of a girl child. The main objective of the SSY scheme is to encourage parents to invest in a long-term plan for their daughters’ higher education and marriage. The SSY scheme is a significant part of the Beti Bachao, Beti Padhao initiative. It was announced in January 2015 by the Prime Minister of India.

The parents of a girl child under the age of 10 years are eligible to invest in this scheme. The investment in the SSY scheme is locked in for 21 years from the date of opening the account. However, one can invest only for 15 years from the date of the account opening.

Investments made in SSY accounts are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. One can invest up to Rs.1,50,000 a year in these accounts while a minimum of Rs.250 a year must be made. SSY accounts can be opened and operated at any branch of authorised banks and India Post Office.

Features and Benefits of SSY

  • The parents or guardians of the girl child below the age of 10 years can open the SSY account on the behalf of the girl child and can operate the account.
  • Once the girl child attains 18 years of age, the account operating power will be shifted to the girl child automatically.
  • The benefits of the account mandatorily go to the girl child.
  • Only one SSY account can be opened per girl child.
  • Each family can have a maximum of two SSY accounts.
  • In case of special circumstances where an SSY account is opened for the first girl child and the second order is twin girl children or more, then they can have more than two SSY accounts.
  • You can invest any amount in the range of Rs.250-Rs.1.5 lakh per financial year.
  • The payment tenure for the account is 15 years.
  • The interest rate offered on the SSY account is 7.6% p.a. For Q1 of FY 2021-22.
  • Get income tax exemption on the capital invested, the interest earned, and the maturity amount.

Illustration

Say, you have a one-year-old girl child and you plan to invest in an SSY account. If you plan to invest Rs.20,000 per financial year in the year 2021, the maturity amount you can earn will be Rs.8,49,000 in the year 2034. This maturity amount is arrived at keeping in mind the applicable interest rate of 7.6% p.a. for Q4 FY21.

On the other hand, if you can invest Rs.80,000 per financial year, the maturity value will be Rs.33,95,000. Your daughter can use this amount to plan and execute her higher education abroad and become independent and successful.

Use our Sukanya Samriddhi Yojana calculator to calculate the possible amount you can invest in the SSY account every year and find out the maturity amount your kid may get.

What are Children’s Gift Mutual Funds?

Children’s gift mutual funds are positioned at raising funds for various life events of children such as higher education and marriage. These funds are classified as balanced or hybrid mutual funds. One can invest in children mutual funds only in the name of their child (minor).

Children’s gift mutual funds generally have a lock-in period of 18 years. These funds are classified as hybrid-debt oriented and hybrid-equity oriented, depending on the equity exposure. If the equity exposure is 60% or more, then they are considered hybrid equity, if not, they are considered hybrid debt.

Features and Benefits of Children’s Gift Mutual Funds

  • Parents or legal guardians can invest in this scheme on behalf of the children.
  • Not restricted to girl children.
  • The returns from the investment can be used to fund your children’s education and marriage.
  • Based on the fund type you choose, there may be a lock-in period.
  • Choose equity-oriented hybrid/balanced funds to get higher returns.
  • Choose debt-oriented funds to get higher stability and moderate returns.

Illustration

If you invest Rs.20,000 per financial year in the form of SIPs for 15 years as in the previous illustration, you may get a maturity value of Rs.8,39,725 given that the returns you have earned are at 12%.

In another case, if you invest Rs.80,000 per financial year in the form of SIPs for 15 years, the maturity amount @ 12% interest may be Rs.33,58,901.

The returns from both the products are almost similar given that the returns on mutual funds stay stable at 12%.

Comparison of SSY with Children Mutual Funds

The following table gives a wholistic comparison of SSY with children mutual funds:

FactorSukanya Samriddhi YojanaChildren Mutual Funds
Account managementParents or legal guardian can operate the account until the girl child turns 18 years old, post which she takes control of the accountParents or legal guardians operate the investment account
ReturnsFixed (It is currently 7.6% per annum)Not fixed as it depends on the markets
Number of accounts Maximum of two accounts for a family with two or more daughtersNo restriction placed on the number of accounts
RiskRisk-free as sovereign guarantees back the schemeCan be risky at times, especially when the market sentiment is down 
Lock-in period21 years from the date of opening the accountUntil the child attains 18 years of age
Investment limitRs 1,50,000 a yearNo limit
Premature withdrawalAllowed only once, after the girl child attains the age of 18 yearsAllowed after the elapse of three years from the date of opening the investment account
Maintenance costNo maintenance costExpense ratio is charged on a yearly basis

Before you decide between the SSY and children mutual funds, you need to assess your risk profile and objectives. If you are willing to bear some risk, then investing in children mutual funds is advisable, if not, then investing in SSY makes sense.

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