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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:
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.
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.
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.
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%.
The following table gives a wholistic comparison of SSY with children mutual funds:
|Factor||Sukanya Samriddhi Yojana||Children Mutual Funds|
|Account management||Parents or legal guardian can operate the account until the girl child turns 18 years old, post which she takes control of the account||Parents or legal guardians operate the investment account|
|Returns||Fixed (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 daughters||No restriction placed on the number of accounts|
|Risk||Risk-free as sovereign guarantees back the scheme||Can be risky at times, especially when the market sentiment is down|
|Lock-in period||21 years from the date of opening the account||Until the child attains 18 years of age|
|Investment limit||Rs 1,50,000 a year||No limit|
|Premature withdrawal||Allowed only once, after the girl child attains the age of 18 years||Allowed after the elapse of three years from the date of opening the investment account|
|Maintenance cost||No maintenance cost||Expense 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.