Is Investing in Sukanya Samriddhi Yojana Enough to Secure the Future of Your Girl Child?

Last week, I visited my cousin Kanchan who is blessed with a cute baby girl a few months ago. As we were talking about how important it is to start saving for your child's future as soon as possible, given the rising cost of education. She said, "Mitali when I was seeking for investment choices for our baby girl, I came across the Sukanya Samriddhi Yojana (SSY), which is specifically meant to save for the future financial needs of the girl child' 'Do you think I should consider investing in SSY?"

To which I replied, "Sukanya Samriddhi Yojana is a government-backed welfare scheme. It gives a parent or guardian the opportunity to open a Sukanya Samriddhi Yojana (SSY) account in the name of the girl child in designated branches of public-sector banks or private banks or in a post office, with a minimum amount of Rs 250. It is a special initiative for the girl child and aims to encourage saving and building a corpus for the girl child aged ten or below. However, before you consider investing in this scheme, there are various aspects you need to consider."

Many parents in India prioritise saving money for their daughters' education and marriage as one of their top financial priorities. Therefore, the well-known girl child savings scheme Sukanya Samriddhi Yojana, which was introduced in 2015 as a part of the "Beti Bachao Beti Padhao" campaign, does appeal to parents since it appears to be a special product that can help them save for their daughter's marriage and education.

Making the proper decision between the two options is crucial since many parents frequently confuse between the Public Provident Fund and Sukanya Samriddhi Yojana as long-term investment instruments for their daughters. Parents need to choose the instruments that give the best returns along with other benefits.

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When it comes to PPF vs SSY, currently, the better option is Sukanya Samriddhi Yojana mainly because it has a higher interest rate of 7.6% than the PPF and various other small savings schemes. Hoping it will continue in the future also, SSY scores over PPF.

About Sukanya Samriddhi Yojana in detail:

• The eligibility criteria outlined by the government for enrolling in this scheme are given as follows:

  • - This scheme is available only for girl children living in India.

  • - The girl child must be less than 10 years old when signing up for this account.

  • - A maximum of two girl children from a family can be enrolled in this scheme. A third account can be opened if the family has twin girls.

  • - It is mandatory to submit the age proof of the children while opening the account.

• A minimum deposit of Rs 250 is required to start a Sukanya Samriddhi account. The maximum limit on the amount of deposit to this account has been set at Rs 1.5 lacs per account in a financial year. There is no limit on the number of deposits in a month or a fiscal year. A penalty of Rs 50 will be charged if a minimum deposit of Rs 250 is not made to keep the account active.

• Remember that an SSY account has a lock-in period of 21 years. Deposits can be made on a monthly or yearly basis for 15 years from the date of opening the account. Investments can't be made after 15 years, but the account keeps gaining interest for the next seven years and matures after 21 years.

• SSY makes sure the girl child receives the maturity proceeds and that the parent or guardian does not use them for any other personal financial needs. When a girl turns 18, she is permitted one early withdrawal under specified circumstances. The premature amount is limited to 50% of the remaining balance in the SSY account.

[Read: Can Sukanya Samriddhi Yojana Be a Good Investment Plan for Your Girl Child?]

Since both PPF and Sukanya Samriddhi Yojana qualify for tax deductions under section 80C, there isn't anything to compare on the tax-saving front. However, to have the flexibility of investing in debt instruments for your daughter's future, having a PPF investment is also a good option. Parents are often looking to choose one out of the two investment options. Instead, one should also keep a small portion of their savings for daughters in instruments such as PPF.

What are the drawbacks of Sukanya Samriddhi Yojana?

Sukanya Samriddhi Yojana carries a few drawbacks as well. Only 50% of the amount is permitted to be withdrawn for the purpose of paying fees for higher education if the girl child is 18 years of age. What if the daughter's higher education requires more money than what is provided by 50% of the SSY account balance?

So, liquidity is an issue. PPF also offers huge flexibility and liquidity throughout a child's life compared to SSY. The reason is that SSY will close once the child turns 21 years of age. However, even if the PPF matures in 15 years, it can be extended further in blocks of five years. Thus, it is advisable to apportion a small amount of saving in PPF as well, which currently offers an interest rate of 7.1% p.a, and the investments in PPF can be made in a lump sum or in a maximum of 12 instalments. The minimum investment allowed is Rs 500, and the maximum is Rs 1.5 lakh for each financial year.

To conclude...

Investing in the Sukanya Samriddhi Yojana is a wise choice if you are looking for a long-term scheme with guaranteed returns. However, do note that the government yearly reviews the scheme and can make changes in the interest rate if necessary. Additionally, bear in mind that you are also saving for your daughter's future marriage and education. In India, the cost of education is rising far faster than general inflation or the returns offered by secure debt instruments.

Therefore, it is for these reasons I think that using SSY as the sole investment option for your girl child isn't the right approach. You should also invest a small portion in her PPF account, and if you could stomach the slightly higher risk, you may consider investing in equity-oriented funds to earn inflation-beating returns, and it will help you build up the funds you'll need to pay for the rising cost of higher education in India.

You can invest in mutual funds via Systematic Investment Plan (SIPs) in the name of your girl child. There are many mutual fund houses which have mutual fund schemes designed specifically for children's education or future.

[Read: How to Invest in Mutual Funds for Your Child's Future]

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Warm Regards,
Mitali Dhoke
Jr. Research Analyst