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Sukanya Samriddhi vs. Children Mutual Fund

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There are a few financial products that are considered for a child's future planning and Sukanya Samriddhi Yojana (SSY) and Children’s Mutual Funds are two of them. SSY is a government-backed scheme of saving which is specially designed for girl children with a guarantee of capital and fixed returns. Children Mutual Funds, on the other hand, are market-linked investment schemes which have a long-term objective of generating wealth through equity and debt investments. Both SSY and Children MFs have their own advantages, SSY is stable, tax-friendly, while Children MFs are flexible and can be more rewarding with a longer time frame. While the decision typically comes down to financial objectives, comfort level with risk and investment flexibility, there are some other factors to consider.

What is sukanya samriddhi yojana?

Sukanya Samriddhi Yojana (SSY) is a central government-backed investment scheme aimed at empowering the parents of a girl child to create a corpus for her marriage and higher education. It is a part of the government’s “Beti Bachao Beti Padhao” initiative.

Under this scheme, you can open an SSY account in the name of your girl child with a post office or an authorised bank and start investing in it. The minimum and the maximum amount one can invest in an SSY account in a single financial year are ₹250 and ₹1.5 lakhs respectively. You will earn guaranteed¹ interest on your investments.

Features of the SSY scheme

The following are the key features of SSY scheme.

Sukanya Samriddhi Yojana is a government sponsored small savings scheme launched for girl children below the age of 10 years.
The minimum annual contribution under the scheme is Rs. 250, while the maximum investment limit is Rs. 1.5 lakh in a financial year.
It becomes mature after 21 years from the date of opening of the account or after marriage of the girl child when she turns 18 years.
The interest rate for SSY in FY 2025-26 has been revised to 8.2% p.a. compounded and updated periodically by the government.
Gifts given under the scheme are tax deductible under Section 80C of the Income Tax³ Act with applicable limits.
Withdrawals up to 50% of the balance can be made at 18 years of age for a daughter child to pursue further education or other related costs.
The scheme has been supported by the Government of India, so it is a low-risk investment opportunity for long-term savings.

What are children mutual funds?

Children Mutual Funds are investment funds for parents or guardians to develop financial assets for their child's education or marriage. In general, these funds will invest in a combination of equities and loans based on the aim of the scheme and its risk profile. Most of the mutual funds that focus on children have a lock-in period or they have a strategy to invest for long term which eventually leads to a disciplined wealth creation. These are market linked products and returns are variable and dependant on the performance of the market. However, they do offer the potential to earn returns that beat inflation in the long term compared to typical savings schemes.

Features of children mutual funds

Below are the key features of children's mutual fund schemes:

Usually, these schemes invest 60% of the amount in equity instruments and 40% in debt instruments. However, you can alter the asset allocation ratio as per your risk appetite and investment horizon.
These schemes come with a mandatory lock-in period of five years or until the child becomes an adult, whichever is earlier.
A penalty of up to 4% is levied as an exit load on premature withdrawals.
There are no restrictions on the maximum investment amount and the number of mutual fund schemes in which you can invest.
Investments made in the children's mutual fund schemes are available for tax exemptions under section 80C of the Income Tax Act. However, the returns on maturity are taxable with indexation benefits.

Children Mutual Funds Vs. Sukanya Samriddhi Yojana

The table below shows differences between Sukanya Samriddhi and Children Mutual Fund.

Basis of Comparison	Children Mutual Funds	Sukanya Samriddhi Yojana (SSY)
Nature of Investment	Market-linked investment product investing in equity and debt securities.	Government-backed small savings scheme for girl children.
Risk Level	Returns and capital value depend on market performance, making the risk comparatively higher.	Considered low risk because it is supported by the Government of India.
Returns	Returns are variable and may provide higher growth potential over the long term.	Offers fixed interest rates declared periodically by the government.
Eligibility	Can be opened for any child by parents or guardians.	Available only for girl children below 10 years of age.
Investment Flexibility	Investors can choose SIPs or lump sum investments based on preference.	Annual contributions must remain within the prescribed limits.
Liquidity	Redemption rules depend on the scheme structure and lock-in conditions.	Partial withdrawal is allowed only after specific eligibility conditions are met.
Tax Benefits	Tax treatment depends on the type of mutual fund and prevailing tax regulations.	Investments qualify for deductions under Section 80C, with tax-free maturity benefits subject to rules.
Investment Objective	Focuses on long-term wealth creation through market participation.	Primarily aims to encourage disciplined savings for a girl child’s future.

Conclusion

The choice between the two investment plans must be based on your personal preferences and risk appetite. While the SSY scheme allows you to create a guaranteed¹ corpus for your girl child, the children mutual fund scheme offers more flexibility but with higher risks.

Moreover, you can invest in the SSY scheme only for a girl child, so if you want to invest for your son, you can opt for the children mutual fund scheme.

Note that if you wish to get the dual benefits or protection and investment, you can invest in a suitable savings plan for your child's financially secure future.

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Key Takeaways

SSY is a government-backed savings scheme for girl children offering fixed returns and low-risk long-term savings.
Children Mutual Funds are market-linked investments that offer higher growth potential with higher risk and flexible investment options.
SSY provides stable tax-free benefits, while Children Mutual Funds focus on long-term wealth creation through equity and debt investments.

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Can I invest in both the Sukanya Samriddhi Yojana and Children mutual fund schemes?

Yes. You can invest in both the SSY and the children's mutual fund scheme to create a large corpus for your girl child. However, you cannot have more than one SSY account for a single girl child.

How much return can I generate through a children's mutual fund SIP?

You can start a SIP in a children's mutual fund to invest a fixed amount every month till the lock-in period. The returns depend on the performance of the underlying assets. You can use an online SIP calculator to know the estimated returns.

How can I invest in the SSY scheme?

You can open an SSY account in the name of your girl child with a post office or an authorised bank and start investing in it.

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Guaranteed¹ Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry.
²Market-linked returns² are subject to market risks and terms & conditions of the product. The assumed rate of returns or illustrated amount may not be guaranteed and depends on market fluctuations.
³Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.