A Birds Eye View on Public Provident Fund and Sukanya Samriddhi Yojana and how to choose in between them while investing for your girl child.
In the part one of this article the suitability of schemes like NSC, MIS, KVP and SCSS have already been discussed. In this part we discuss about PPF and SSY and owing to the similarities in these two schemes also compare the two schemes. Note that the rates have been updated according to the new rates applicable from 1st April 2016.
| Scheme | CAGR (%) | Liquidity | Special Benefits | |
| Lock in period | Withdrawal within lock in period without penalty | |||
| PPF | 8.10% | 15 years |
√ (Partial) |
Tax Savings |
| SSY | 8.60% | 21 years |
√ (Partial – 18yr onwards) |
Scheme for girl child
Tax Savings |
Public Provident Fund (PPF)
Whom is it applicable for: Resident Individuals and HUFs
Where to buy from: This scheme can be purchased from any Post Office or selected banks (SBI, Other Nationalized Banks, ICICI, Axis Bank etc). Forms can be downloaded from the respective websites and some banks also give online facility to open a PPF account.
Investment required: Minimum amount used to open the account is Rs 100 but minimum investment to be made per year henceforth is Rs 500. The maximum limit that can be invested in a year is Rs 1,50,000. (One should not deposit more than the limit per year as they may neither get interest nor tax benefit for the amount exceeding the maximum limit.) Deposits can be made in lump sum or in twelve installments in a year.
Lock in Period: It is 15 years but it matures on 1st April of the financial year after the 15th year. It can be further extended for a period of 5 more years and this extension can be taken again and again. On extension you will have the option to extend with further contribution or without it. If you neither extend nor withdraw your amount within 1 year from maturity, extension without contribution gets activated by default. In this option you only earn interest and you can partly withdraw money once every year during extended period.
Rate of Return: Rate of Interest is 8.10% p.a. compounded yearly from the financial year 2015-16. The interest is calculated monthly on the lowest balance between the end of the 5th day and last day of month, however the total interest is added back to the closing balance of PPF at year end only. Thus we should make our deposits in between 1st to 5th of a month only to maximize our returns.
Tax Benefits: Deposits entitle the depositor to get a deduction in taxable income to the extent of the amount invested subject to a maximum of Rs 1,50,000 in a financial year u/s 80C of the IT Act. The interest accrued is totally tax free.
Other Benefits: You can take a loan from your PPF account from the 3rd year to the 6th year, the maximum amount of permissible loan being 25% of the balance at the end of the second preceding year from the loan year. The rate of interest for loan is higher and you have to repay your loan within 36 months and before taking a new loan.
CAGR: 8.10%
Withdrawals and Premature Withdrawals: Partial withdrawal is allowed from the seventh year and the quantum of permissible withdrawal at a time is lower of 50% of the balance at the end of the fourth preceding year or that at the end of the immediately preceding year.
Flexibility of investing: It gives tax benefits but it has an upper limit of investment Rs 1,50,000 per year and an individual can open only one PPF account at a time. Thus if you invest the maximum amount every year and make no withdrawals still your maturity amount after 15 years would be around Rs 44,37,132 (for an investment of Rs 22,50,000 @ 8.10%) though you can extend it. It is a good tool for tax saving and having some amount of risk free returns.
Sukanya Samriddhi Yojana (SSY)
Whom is it applicable for: Parent/Legal Guardian can open this account for their Girl Child anytime from their birth up to the age of 10 years.
Where to buy from: This scheme can be purchased from any Post Office or selected authorized banks.
Investment required: Minimum investment is Rs 1,000 and maximum investment limit is Rs 1,50,000 in a financial year. There is no limit on number of deposits made in a financial year and subsequent deposits can be made in multiples of Rs 100.
Lock in Period: The maturity of this scheme is 21 years but contribution can be made only till 14 years.
Rate of Return: 8.60% compounded annually.
Tax Benefits: Deposits entitle the depositor to get a deduction in taxable income to the extent of the amount invested subject to a maximum of Rs 1,50,000 in a financial year u/s 80C of the IT Act. The interest accrued is totally tax free.
CAGR: 8.60%
Withdrawals and Premature Withdrawals: Partial withdrawal is allowed after the girl attains the age of 18 up to 50% of the amount accumulated till 18 years of age.
Flexibility of investing: It is a scheme specially designed for girl child. It not only gives tax benefits but also a good rate of return. The lock in period of 21 years is very long and fresh contributions are taken only for 14 years. It is not very flexible but helps save a corpus for your child’s future by the time they grow up. If a parent opens this account for the child at the time of her birth and invests Rs 1,50,000 every year for 14 years then at 21 years of age of the child the investment will mature and give Rs 73,36,796 tax free at the current rate of interest ( for an investment of Rs 21,00,000). Moreover, the parent will also save taxes of Rs 15,000 (assuming 10% tax slab) on an otherwise taxable income of Rs 1,50,000 every year for first 14 years i.e. a total cumulative tax savings of Rs. 2,10,000.
How to plan and accumulate 1 crore for your girl child?
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Comparison/Combination of SSY and PPF:
Since SSY is a scheme only for the girl child only people who are investing for their child have this choice of deciding whether to use SSY or PPF as a medium of investing. SSY launched by the government in 2014 as a part of the ‘Beti Bachao, Beti Padhao Andolan’ is very similar to PPF in terms of tax benefits and maximum limits of investment per year. The only major differences are in their tenures and interest rates.
Currently the rate of interest of SSY is higher than that of PPF and in my opinion one should take advantage of this. The only big drawback in SSY is that you can only invest till 14th year thus I suggest if a parent wants to continue saving more for their child then they should also invest in PPF. This way they can take advantage of both schemes.
Following is an example of how you can plan and invest in both schemes and accumulate more than Rs 1 crore by investing Rs 1,50,000 yearly (i.e. Rs 12,500 per month) for 24 years that is completely tax free and almost risk free. Additionally you also get tax savings in the form of deduction to the extent of your deposit (i.e. Rs 1,50,000 for this example) from your taxable income per year. This example will be clearer from the table below-
| Year | Investment in SSY in the beginning of year | Investment in PPF in the beginning of year | Total tax benefit | End of year Inflows |
| 0-1 | 1,50,000 | – | 1,50,000 | – |
| 2 | 1,50,000 | – | 1,50,000 | – |
| 3 | 1,50,000 | – | 1,50,000 | – |
| 4 | 1,50,000 | – | 1,50,000 | – |
| 5 | 1,50,000 | – | 1,50,000 | – |
| 6 | 1,50,000 | – | 1,50,000 | – |
| 7 | 1,50,000 | – | 1,50,000 | – |
| 8 | 1,50,000 | – | 1,50,000 | – |
| 9 | 1,50,000 | – | 1,50,000 | – |
| 10 | 20,000 | 1,30,000 | 1,50,000 | – |
| 11 | 20,000 | 1,30,000 | 1,50,000 | – |
| 12 | 20,000 | 1,30,000 | 1,50,000 | – |
| 13 | 20,000 | 1,30,000 | 1,50,000 | – |
| 14 | 20,000 | 1,30,000 | 1,50,000 | – |
| 15 | – | 1,50,000 | 1,50,000 | – |
| 16 | – | 1,50,000 | 1,50,000 | – |
| 17 | – | 1,50,000 | 1,50,000 | – |
| 18 | – | 1,50,000 | 1,50,000 | – |
| 19 | – | 1,50,000 | 1,50,000 | – |
| 20 | – | 1,50,000 | 1,50,000 | – |
| 21 | – | 1,50,000 | 1,50,000 | 58,43,441 |
| 22 | – | 1,50,000 | 1,50,000 | – |
| 23 | – | 1,50,000 | 1,50,000 | – |
| 24 | – | 1,50,000 | 1,50,000 | 41,60,205 |
| Total Investment in SSY and PPF = Rs 36,00,000 | Rs 1,00,03,646 | |||
Thus, if a parent takes a SSY for the child at birth and a PPF scheme when she completes 9 years of age and invests as given in the table, the child will receive a lump sum of around Rs 58.4 lakhs when she is 21 from SSY and around Rs 41.6 lakhs when she is 24. Notice that in the earlier years of any scheme you should invest more as it gives better returns due to long term compounding. Also note that total investment in any particular financial year is kept within the permissible tax deduction limit though it is not necessary. This plan is just a sample plan and you can use different combinations (such as start investing in PPF from 15th year etc) to generate a plan to suit your needs. In the last few years your child can also contribute to her PPF.
Note that while estimating how much you will need for your children after 20 to 25 years you have to also take into account inflation. Thus, any planning done for the future should be done in such a way that you balance and invest some proportion in these safe investments and some proportion in slightly riskier asset classes with higher returns so that you can overcome inflation. (To know more about asset allocation read detailed articles in the financial planning section of this blog.)
Note : The interest rates and tax rules mentioned have been updated in this article for Financial Year 2016-2017.
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Ma’am under 80 c if I invest 1.5 lacs in both ppf & ssy schemes each do I get tax benefit on all (1.5+1.5)= 3 lacs. Plz reply