Public Provident Fund (PPF) Vs Sukanya Samriddhi Yojana (SSY) – Which is best for your child? Both products are popular and obviously many get confused.
When considering child education or marriage goals, it is natural to utilize both products. Both options provide similar tax benefits. Consequently, parents often find themselves uncertain about which one to select. However, if you look closely at the features of the products, you will see that they are meant for different purposes!!
Public Provident Fund (PPF) Vs Sukanya Samriddhi Yojana (SSY) – Which is best for your child?
We will examine the features of each product to help you understand the differences between the Public Provident Fund (PPF) Vs Sukanya Samriddhi Yojana (SSY), allowing you to make an informed decision on which option is most suitable for your needs.
Taxation –
The two products provide identical tax advantages. When making an investment, you can take advantage of the tax benefits offered under Section 80C. However, it is important to note that these tax benefits are not applicable under the new tax regime.
Whatever interest you earn during the holding period is tax-free in both cases.
Maturity proceeds from both products are tax-free. Therefore, we can classify both products as EEE (Exempt-Exempt-Exempt).
This is the primary motivation for numerous individuals to make investments. Nevertheless, they disregard all other criteria completely.
Maturity –
This is where you can find the major difference. As you are aware, PPF is a 15-year product that comes with certain lock-in and restrictions. (Refer to my earliest posts “PPF-Loan And Withdrawal” and “All About Public Provident Fund Or PPF“).
However, many people are unaware of the different options available after 15 years have passed. They can choose to close the account, keep it open without making additional contributions, or continue contributing to it. (Refer to the detailed post on this aspect “PPF Withdrawal Rules & Options After 15 Years Maturity).
But Sukanya Samriddhi Yojana (SSY) has a different feature when it comes to account closure (Refer to my earlier post “When Does Sukanya Samriddhi Yojana Or SSY Mature?“).
The SSY account will reach maturity either 21 years after opening or when your daughter gets married after turning 18, whichever comes first. However, you only need to contribute for 15 years. After that, the SSY account will keep earning interest until it matures, even if you don’t make any more deposits.
Assume that your child is at the age of 5. In this situation, you have the opportunity to make contributions for a total of 15 years. This means that until your daughter reaches 20 years old, you can contribute a maximum of Rs.1,50,000 per year. However, once she turns 20, you will no longer have the ability to make any further contributions. However, it’s important to note that the account will reach maturity when she turns 26, which is 21 years after it was initially opened. Alternatively, if she gets married before turning 26 (after 18 years), the account will also reach maturity.
You can withdraw the entire balance at the time of maturity. However, if you need money before the maturity period, you can avail of the following option.
Withdrawal of up to a maximum of 50% of the amount in the account at the end of the financial year preceding the year of application for withdrawal will be allowed for the education of the daughter. Also, to be eligible for such withdrawal, your daughter must attain the age of 18 years or have passed the tenth standard, whichever is earlier (Government Notification – Dated 12th December 2019).
It means you can withdraw 50% of the balance for funding her education expenses of 11th standard also. You are allowed to withdraw as one lump sum or in installments, not exceeding one per year, for a maximum of five years.
However, many of us have a misconception that such withdrawal is possible only once the daughter attains the age of 18 years. It is not like that. It is mentioned in the notification that either the daughter attained the age of 18 years or has passed the 10th standard WHICHEVER IS EARLY.
Interest Rate –
If you compare the historical interest rates of both the products, you notice that SSY offers better returns than PPF (The current PPF rate is 7.1% and SSY rate is 8.2%. Refer to latest rates at “Post Office Savings Schemes Interest Rates April – June 2024“.) Hence, obliviously SSY holds an edge. But we can’t judge the product based on just the interest rate. Hence, we have to look for suitability also.
Suitability –
Please be aware that the PPF is designed for anyone, including yourself, your spouse, daughter, or son. However, the SSY is specifically intended for girl children only. Also, it is not advisable to rely solely on these products to achieve your children’s educational and marriage goals. Instead, you should consider treating these products as a debt portion of your investment.
In addition to these, it is important to invest in equity to combat inflation. Therefore, asset allocation between equity and debt is crucial. For the debt portion, you can utilize these two products. It is also important to note that these two products have certain restrictions on withdrawal. Therefore, it would be wise to invest a small amount of the debt portion in debt funds. This liquid debt portion can be useful in maintaining proper asset allocation, especially in the event of a significant deviation in equity due to market decline.
Furthermore, in the scenario where you are utilizing a PPF for your child’s future (whether opened in your name or in the child’s name), you will need to close it after 15 years and utilize the funds for the child’s educational or marriage goals. Subsequently, if you or your child decides to open a new PPF account, a fresh 15-year cycle will commence with a lock-in period of 15 years. It is important to note that the flexibility and liquidity benefits, which are accessible after 15 years (during the extension period), will not be available (except for loan and withdrawal). This I think the biggest hindrance or negativity if someone wishes to open the PPF account for child educational or marriage goals funding.
Also, assume that you have your own PPF account and you wish to open one more PPF account for your child, then the combined yearly limit of investment in both accounts is Rs.1,50,000 ONLY but not Rs.3,00,000. This creates restrictions if your debt part investment is much bigger than this.
Before selecting a PPF, it is crucial to consider the timeframe in which you will require funds for your child’s education or marriage goals. If your requirements fall within a 15-year period and you are opening a new account, the PPF may not be a suitable option as its minimum tenure is also 15 years.
If you are fine with the above-shared points, then you can use PPF as a debt part of your kid’s investment. Otherwise, rather than relying too much on PPF, it is wise to use debt funds also.
As previously stated, SSY is specifically designed for the benefit of a female child. Additionally, it cannot be extended beyond the completion of her education and marriage goals. Therefore, I believe there is no problem in utilizing the SSY for your daughter’s debt obligations. However, it is advisable to also allocate a certain portion of the debt obligations to debt mutual funds for the purpose of maintaining liquidity.
Let me share all the points through the below table for your better understanding.
Conclusion – Just because both products are the best (government schemes), offer fantastic tax benefits, and are the most popular among us does not mean that we have to BLINDLY choose and invest for our kid’s educational and marriage goals. You have to look for your own suitability and accordingly take a call rather than generic advice.
