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When investing for your girl child’s future, you have several options, including Sukanya Samriddhi Yojana and Children Mutual Funds. Comparing these investment plans based on their advantages, disadvantages, return potential, etc., can help you determine the best scheme for your child.
Becoming a parent is bliss. A child brings with it a bundle of joy and happiness to the entire family. However, it also brings some responsibilities. One important aspect of parenthood is to provide the best facilities to your child and invest a portion of your income to ensure their bright future.
Sukanya Samriddhi Yojana and Children Mutual Funds are the two most popular investment plans where you can invest for your child’s future. To help you decide on the best investment scheme, we have compared Mutual Fund vs. Sukanya Samriddhi Yojana in this article.
Here, you will find detailed information about the two schemes, including their advantages, limitations, return potential, lock-in periods, investment tenures, withdrawal rules, and more. Continue reading.
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 guaranteed interest on your investments.
Features of the SSY Scheme
Below are the salient features of the Sukanya Samriddhi Yojana scheme:
A parent or a legal guardian of a girl child can open an SSY account in her name until she attains the age of 10.
You can open only one SSY account for a single girl child. If you have two girl children, you can open two SSY accounts, and so on.
The government may revise the SSY interest rate every quarter. The current interest rate (for the second quarter of the Financial Year 2023-24) is 8% per annum.
The government deposits the interest amount in SSY accounts at the end of each financial year.
The investments made in an SSY account remain locked until the girl child attains the marriageable age of 21. She can withdraw the entire amount after that.
Premature withdrawal of up to 50% of the corpus is allowed only for the girl child’s higher studies after she turns 18.
The investments made into an SSY account are available for tax* exemptions under section 80C of the Income Tax Act of 1961.
The interest earned from the investments is also exempted from the income tax.
What are Children Mutual Funds?
The Children mutual funds are open-ended mutual fund schemes curated exclusively to help parents like you create a corpus for your child’s higher education, marriage, and other future obligations. These are usually hybrid mutual fund schemes, which means that they invest your money in a combination of equity and debt instruments2 to ensure the right balance between good returns and capital safety.
You can invest in a children mutual fund scheme as lump sums or through a Systematic Investment Plan (SIP). If you plan to invest through an SIP, you can start with as low as ₹500 per month. If you plan to invest as a lump sum, you can invest a minimum of ₹1,000. However, it can vary from one scheme to another.
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 following table compares the returns and other parameters for annual investments in Sukanya Samriddhi Yojana vs. SIP in a Children Mutual Fund scheme:
Parameter |
Sukanya Samriddhi Yojana |
Children Mutual Fund |
Eligibility |
A parent or legal guardian of a girl child can open an SSY account |
Anyone with a boy or a girl child can invest in a children’s mutual fund scheme |
Age Limit |
The maximum age limit for opening an SSY account is 10 years |
The maximum age limit for initiating a CMF SIP is 18 years |
Investment Frequency |
You have to invest at least ₹250 once every financial year. The maximum investment amount is ₹1.5 lakh |
You can invest as lump sums or through an SIP. The minimum SIP amount is ₹500 per month. |
Returns |
Provides guaranteed interest as per the interest rate decided by the government |
Returns are market-linked. They depend upon the performance of the underlying funds |
Risks |
Low risk as this is a government-backed scheme |
High risks as the investments are made in the market |
Lock-in Periods |
The investments are locked until the girl child attains the marriageable age of 21 |
Comes with a lock-in period of five years or until the child becomes an adult (whichever is earlier) |
Premature Withdrawals |
Allowed only under special circumstances |
Allowed with a 4% exit load |
The Final Word
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.
