Fixed deposit, PFF and Sukanya Samriddhi scheme are all debt investment instruments. If you are planning to invest for your child’s education, here is a comparison between Sukanya Samriddhi Scheme, PPF and FD.
New Delhi: Over the last decade, the cost of living has shot up significantly. Education especially has become way costlier than how it used to be about 10 years ago. A few years back parents’ savings were enough to fund their child’s education but now parents need advance planning, savings and investment to make sure that have enough money for their child to receive the best education possible.
For years, parents have relied on fixed deposits (FD) to raise money for their children’s education but there are other investment instruments available like the Sukanya Samriddhi Yojana and PPF. Fixed deposit, PFF and Sukanya Samriddhi scheme are all debt investment instruments, which means that they are risk-free.
If you are planning to invest for your child’s future, here is a comparison between Sukanya Samriddhi Scheme, PPF and FD.
Sukanya Samriddhi Scheme:
Sukanya Samriddhi Yojana (SSY), is a small savings scheme, launched by the Government of India in January 2015 for girl children. This government-backed scheme helps parents of girl children build a corpus for the future education and marriage of their daughter.
Interest rate: Interest rate offered in Sukanya Samriddhi account is decided by the government and is notified from time to time by the Finance Ministry in every quarter. Currently, 8.5 per cent interest rate is provided on these accounts for the December quarter.
Lock-in period: It has a long lock-in period of 21 years from the date of opening the account.
Tax Benefits: It offers EEE tax benefit which means that the contribution, the interest earned and the maturity proceeds are exempted from tax under Section 80C of the Income Tax Act.
Eligibility: It is only for girls below 10 years of age. Only one account can be opened in the name of one girl child. Parents can open maximum two Sukanya Samriddhi accounts.
Contribution: A minimum deposit of Rs 1,000 is required to be made every year in Sukanya Samriddhi Account while one can deposit a maximum of Rs 1.5 lakh every year into this account.
Withdrawal: Premature withdrawal can be made once the girl child attains the age of 18 years. Up to 50 per cent of the balance standing at the end of the preceding financial year can be withdrawn.
Public Provident Fund: PPF is a long-term fixed investment scheme. It is one of the safest instruments that can be used by individuals or salaried employees who are looking at long-term options for tax-free earnings.
Interest rate: The interest rate on PPF is compounded on an annual basis. Currently, PPF is offering 8% rate of return.
Lock-in period: It has a long lock-in period of 15 years from the date of opening the account.
Tax Benefits: It offers EEE tax benefit which means that the contribution, the interest earned and the maturity proceeds are exempted from tax under Section 80C of the Income Tax Act
Eligibility: One PPF account per person can be opened. Parents/ legal guardians can open a PPF account for minors. The child can choose whether he/she wants to continue the PPF account after the 15-year maturity period. He/she can either close the account or can be extended it by ‘n’ number of times for a block of five years each.
Contribution: When a PPF account is opened for the minor it should be noted that the contribution in both PPF accounts combined does not exceed Rs 1.5 lakh in a financial year.
Withdrawal: While partial withdrawal is allowed from the 7th year, the withdrawal rules for extended PPF accounts allow individuals to withdraw money once in a financial year.
Fixed Deposit: Fixed deposit is one of the safest investment instrument. FDs provide guaranteed returns as the interest rate is fixed for the entire term. FDs are safer but they provide low liquidity. FDs account holders can earn an interest of 7% to 8.5% depending upon their lender. Fixed deposit returns are fully taxable which means that your returns will be eroded by inflation as well as tax.
PPF Vs Sukanya Samriddhi Scheme Vs fixed deposit
For short-term goals like your child’s primary school education or middle-school education, fixed deposits might be an ideal choice because they offer guaranteed returns and the interest rate is fixed for an entire term. FD returns are completely taxable which do not make them the best investment instrument for long-term financial goals.
Sukanya Samriddhi Scheme:
The scheme is limited only to girl children and has a lock-in period 21 years. The long lock-in period makes it a suitable investment instrument if you are planning to save up for your daughter’s wedding. For higher education purpose it might not be the most ideal instrument. The returns do not take inflation into account. Another drawback is that if someone starts investing when their child is 9-years-old, they may not be able to amass enough wealth to meet the financial goals since they can withdraw only 50% of the savings when the girl turns 18.
Public Provident Fund:
When it comes to long-term financial goals, PPF is the ideal investment instrument. It has a lock-in period of 15 years which is enough time to amass a wealth in order to fund your child’s higher education. PPF also allows partial withdrawal option after completion of six years which makes it an even better option. It offer EEE tax benefits which means that the contribution, interest earned and maturity proceeds are all exempted from tax.