Having a child is one of the most wonderful experiences of our lives. We shift gears to parenthood and begin exploring ways to give our children the most beautiful and enriching lives. One of the important aspects of providing the best life for our children includes investing a part of our earnings to ensure a bright future for them.
As you take different steps and find different investment options for your child, you must have encountered Sukanya Samriddhi Yojana (SSY) and Mutual Funds for Children. To help you find the best investment scheme, this article will give you a detailed overview of both Sukanya Samriddhi Yojana and mutual funds for children.
Each scheme has its advantages and limitations in terms of returns; investment tenure; tax exemptions; withdrawal; lock-in period; and others. Let us go through each scheme and then compare SSY vs Mutual Funds.
What is a Sukanya Samriddhi Yojana (SSY)?
The Sukanya Samriddhi Yojana (SSY) is an investment scheme launched by the National Savings Institute of the Indian Finance Ministry for empowering a girl child. The scheme is a part of the Indian government’s “Beti-bachao, Beti-padhao” campaign (save a girl child, educate a girl child) initiative.
A parent or a legal guardian can open an SSY account at post offices and authorised banks in the name of the child. In this scheme, a parent can invest from a minimum amount of Rs. 250 to a maximum amount of Rs. 1,50,000 in a single financial year. The investment in this scheme can be used for a girl child’s education, marriage, and other purposes.
Some key features of the SSY scheme are as follows:
- A Sukanya Samriddhi Account can be opened by a parent or a legal guardian of a girl child till she attains the age of 10 years.
- In a family, upto two accounts can be opened for two girl children i.e. only one Sukanya Samriddhi Account per girl child is allowed.
- The tenure of the SSY scheme is 21 years from the date of account opening. However, a parent needs to deposit money for a period of fifteen years from the date of opening of the account.
- The interest rate is set by the Indian government and updated every quarter. The current interest rate stands at 7.6% per annum and this interest is compounded annually.
- The interest amount is deposited in an SSY account at the end of each financial year.
- Premature withdrawal or closure is allowed only in a few cases.
- For instance, if funds are needed for a girl’s higher education once she reaches 18 years of age, 50% withdrawal is allowed upon submitting the appropriate documents.
- If funds are required for the marriage of the girl, premature withdrawal is allowed upon submitting an application and relevant documents a month before or within three months of the date of marriage.
- In the event of the death of the account holder, SSY account will be closed immediately on the production of a death certificate. The balance in the account will be paid to the guardian of the account holder.
- The account can also be closed prematurely in case the guardian is unable to contribute to the scheme. This permission is issued under extreme compassionate grounds like medical exigencies and life threatening diseases.
- Parents can avail of tax exemptions on the total investments in a financial year in an SSY account. Under Section 80C of the Income Tax Act, parents can claim tax deductions up to Rs. 1,50,000 while filing income tax returns.
- Moreover, the interest amount generated each financial year from an SSY account is exempt from tax.
Read More about What is Sukanya Samriddhi Yojana Interest Rate?
Even though a parent or a legal guardian opens an SSY account before a child reaches the age of 10 years and manages the whole account throughout the tenure, a girl can take control of the account as she reaches the age of 18. This investment scheme gives assured returns, offers tax exemptions, and empowers a girl child.
What is a Mutual Fund for Children?
Mutual funds for children are mutual funds that are exclusively designed for children. This is one of the best long-term investment schemes for ensuring your children’s bright future.
One of the major differentiating factors between Sukanya Samriddhi Yojana and mutual funds for children is that investing in children’s mutual funds is not restricted to a girl child. Moreover, you can invest in the name of your child in mutual funds for children.
Some key features of children mutual funds are as follows:
- Children’s funds invest in both equity and debt securities. You can choose for a higher equity or higher debt allocation based on your investment horizon and understanding of risk.
- These open-ended mutual funds have a mandatory lock-in period of 5 years or until the child reaches 18 years of age, whichever is earlier.
- Parents investing in children’s MF plans can avail a tax exemption up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act, 1961. They can also claim an annual exemption of Rs. 1,500 per child as per Section 10(32) of the Income Tax Act, if annual interest income exceeds Rs. 6,500.
- There are no restrictions on the number of mutual fund schemes you can invest in for your children.
- If you need funds urgently for any purpose, you can withdraw prematurely. However, in such cases the fund houses charge up to a 4% penalty as exit load.
- Maturity proceeds are taxable at the time of redemption. However, indexation benefit is available
Due to the fact that these mutual funds are for long-term investments, you can make regular deposits and use the investments for your children’s higher education, marriages, healthcare costs, and other plans like buying a home or a car when they reach maturity.
Sukanya Samriddhi Yojana vs. Mutual Fund For Children: A Comparison Table
The following table compares Sukanya Samriddhi Yojana vs. mutual funds for children based upon a few parameters, benefits, and terms:
|Parameters||Sukanya Samriddhi Yojana||Mutual Fund for Children|
|Age limit to open an account||Up to 10 years of a girl child||Up to 18 years of age|
|Maximum investment that can be made in a financial year||Up to Rs. 1,50,000||No limit|
|Limitations on a number of accounts||Only one account can be opened in the name of one girl child with maximum of two SSY account for a family||Can be opened in the name of a girl or boy child. No limit on the number of schemes|
|Nomination||The SSY scheme does not have a nomination facility.||Mutual fund providers offer a nomination facility.|
|Tax exemptions||Interest amount is compounded yearly and are exempted from tax.||Taxable at time of redemption. However, indexation benefits are available.|
|Returns||The rate of interest is set by the government of India and updated every quarter. The rate of interest for the quarter that ended on June 30, 2022 is 7.6% per annum.||The returns depend upon the fund in which investment is made.|
|Investment tenure||The account will mature 21 years after the date of opening the account. Investments should be made till the completion of 15 years from the date of account opening.||Minimum of 5 years, however it can be extended.|
|Level of risk||Low risk as it is a government-backed scheme||High risk|
|Where to open an account?||Post offices and authorised banks||Any financial institution that offers mutual funds for children|
|Premature withdrawal||Allowed only if the investment is used for a girl’s marriage or higher education after she reaches the age of 18.||Allowed. Premature withdrawals come with a penalty in terms of exit load.|
The investment in any of the schemes between Sukanya Samriddhi Yojana and children’s mutual funds depends upon the risk appetite of the parents and legal guardians. If you compare Sukanya Samriddhi Yojana with mutual funds for children, each scheme has its own benefits. If you opt for an investment in SSY, you will get guaranteed returns and tax exemptions. However, you may not be able to beat the rate of inflation over the long-term.
On the other hand, investing in children’s mutual funds may give you high returns and the freedom to choose the investment tenure. However, the risks involved in this investment are higher. You may beat the rate of inflation, but there is also a possibility of losing money. The choice comes down to your preference and risk appetite.
Frequently Asked Questions:
Is the transfer of the Sukanya Samriddhi Yojana account possible from the post office to the bank?
Yes, it is possible to transfer the Sukanya Samriddhi Yojana account from the post office to the bank.
Can the girl operate the Sukanya Samriddhi Yojana account opened in her name?
Yes, the girl can operate the Sukanya Samriddhi Yojana account opened in her name after she turns 18 years of age.
For how long do I need to pay for the Sukanya Samridhi Yojna?
As a legal guardian or parent of a girl child, you have to keep investing in the SSY account for 15 years from the date of account creation. Please note that the entire lifecycle/tenure of this scheme is until your child attains 21 years of age or until she gets married after turning 18, whichever comes first. So, even if you stop contributing after completing 15 years of contributions, this scheme keeps earning interest until maturity. age.
How much minimum amount do I need to invest in an SSY account per year?
A minimum investment of Rs. 250 has to be made every year to keep the account from going into default. The account in default can be revived within 15 years of opening it by paying the minimum deposit amount of Rs. 250 plus the penalty amount of Rs. 50 for each year of default.