Your Daughter's Future: Sukanya Samriddhi Scheme or Children's Mutual Fund?
R S Kumar, Founder
Sampath Financial Services
Mobile: 98414 08824
Every
parent's dream is to ensure that their child's future is financially secure.
Whether it is higher education, marriage, studying abroad, or starting a
business, the need to begin saving from an early age has become increasingly
important.
In this
context, two of the most popular investment options for parents are the Sukanya
Samriddhi Scheme (SSY) and Children's Mutual Funds. Although both
are designed to help build wealth for a child's future, they differ
significantly in terms of purpose, return potential, risk, investment horizon,
and withdrawal rules. Therefore, understanding the features of each option is
essential before making an investment decision.
What is the Sukanya
Samriddhi Scheme?
The Sukanya
Samriddhi Scheme (SSY) is a government-backed savings scheme introduced to
secure the financial future of girl children.
Parents
or legal guardians can open an account in the name of a girl child below the
age of 10. They can make annual contributions within the prescribed limits, and
the investment earns interest at a rate declared by the Government of India.
Currently,
the interest rate is 8.2% per annum.
Investors can contribute a minimum of ₹250
and a maximum of ₹1.5 lakh in a
financial year. Contributions are required for 15 years, while the account matures after the prescribed tenure
under the scheme.
Since the
scheme is backed by the Government of India, it is considered one of the safest
investment options available.
Under the
old income tax regime,
investments up to ₹1.5 lakh per
financial year are eligible for deduction under Section 80C, subject to applicable conditions. Additionally, the
interest earned and the maturity proceeds are tax-free, making it an Exempt-Exempt-Exempt (EEE) investment.
What are Children's Mutual
Funds?
Children's
Mutual Funds are mutual fund schemes specifically designed to help parents
accumulate wealth for their children's future financial needs.
These
funds invest in a diversified portfolio consisting of equity shares, debt securities, and other financial instruments.
Since they have the potential to generate returns that exceed inflation over
the long term, they are often preferred by parents planning for major goals
such as higher education.
These
schemes generally come with a lock-in
period of five years or until the child attains the age of 18 years, whichever
is earlier, depending on the scheme's terms and conditions.
Unlike
SSY, returns are not guaranteed
because they depend on market performance. However, over long investment
horizons, investors may expect average annual returns of around 10%–11%, though actual returns can be
higher or lower.
For equity-oriented
children's mutual funds (where equity allocation exceeds 65%), long-term
capital gains exceeding ₹1.25 lakh in a financial year are taxed at 12.5%,
while gains up to ₹1.25 lakh are exempt, subject to prevailing tax laws.
If the
scheme is debt-oriented (where investment in debt instruments exceeds
the prescribed threshold), capital gains are generally taxed according to the
investor's applicable income tax slab.
Key Differences
|
Feature |
Sukanya Samriddhi Scheme |
Children's Mutual Fund |
|
Eligible
Child |
Girl
child below 10 years |
Both
boys and girls |
|
Safety |
Very
high (Government-backed) |
Subject
to market risk |
|
Returns |
Government-declared
interest |
Market-linked
returns |
|
Long-term
Growth |
Stable |
Higher
growth potential |
|
Inflation
Protection |
Moderate |
Better
potential over the long term |
|
Investment
Horizon |
Long
term |
Flexible
based on financial goals |
|
Liquidity |
Limited
withdrawals |
Subject
to scheme lock-in rules |
Which Option Carries More
Risk?
The
Sukanya Samriddhi Scheme involves very low investment risk. Both the
principal and the interest are protected by the Government of India.
Children's
Mutual Funds, on the other hand, are exposed to market fluctuations. During
certain years, investors may enjoy excellent returns, while in other years they
may experience lower returns or temporary losses.
However,
over investment periods of 10 to 15 years, market volatility tends to
reduce, significantly improving the likelihood of generating attractive
long-term returns.
Which Investment Better
Beats Inflation?
The cost
of education continues to rise rapidly every year. A professional degree
costing ₹10 lakh today may easily cost ₹25 lakh or more after 15
years.
To meet
such rising expenses, investments should ideally generate returns that exceed
inflation. From this perspective, well-managed equity-oriented Children's
Mutual Funds generally offer better inflation-beating potential than
fixed-interest savings schemes.
Example 1
Meena
decides to invest ₹5,000 every month for her two-year-old daughter.
Her
highest priority is the safety of the investment. She is comfortable with
relatively lower returns as long as the money remains secure.
For
Meena, the Sukanya Samriddhi Scheme could be the more suitable option.
Example 2
Ravi
wants to save for his son's engineering education over the next 15 years.
His
objective is to maximize wealth creation over the long term.
For Ravi,
a Children's Mutual Fund may be the better choice because of its higher
long-term growth potential.
Can You Invest in Both?
Absolutely.
Many
financial advisors recommend combining both investment options instead
of depending entirely on a single scheme.
For
example:
- Invest a portion in the Sukanya
Samriddhi Scheme to ensure capital safety.
- Simultaneously invest
through a Systematic Investment Plan (SIP) in a Children's Mutual
Fund for long-term wealth creation.
This
balanced strategy provides both security and growth.
Things to Consider Before
Investing
- Consider your child's
current age.
- Clearly define whether the
goal is higher education, marriage, or another financial objective.
- Evaluate your family's
monthly savings capacity.
- Assess your willingness to
accept market-related risks.
- Maintain a separate
emergency fund instead of using your child's investments for unexpected
expenses.
- While selecting a mutual
fund, evaluate its long-term performance, investment strategy, fund
manager's track record, portfolio quality, and expense ratio.
Which Option is Suitable
for You?
|
Investor Profile |
Suitable Choice |
|
Parents
seeking safe savings for a girl child |
Sukanya
Samriddhi Scheme |
|
Parents
aiming for higher long-term wealth creation |
Children's
Mutual Fund |
|
Parents
saving for a boy child |
Children's
Mutual Fund |
|
Parents
seeking both safety and growth |
Combination
of both options |
Conclusion
The Sukanya
Samriddhi Scheme and Children's Mutual Funds should not be viewed as
competing investment products. Instead, they serve different financial
purposes.
For
parents who prioritize safety, guaranteed savings, and financial security for a
girl child, the Sukanya Samriddhi Scheme remains an excellent choice.
On the
other hand, parents seeking to build a larger corpus for long-term goals such
as higher education, while keeping pace with inflation, may find Children's
Mutual Funds more suitable.
The best
investment decision ultimately depends on your family's income, savings
capacity, financial goals, investment horizon, and risk tolerance. For many
families, combining both options in a well-planned manner can provide the ideal
balance between capital protection and long-term wealth creation,
helping secure a brighter financial future for their children.
For more details and Investing'
R S Kumar, Founder
Sampath Financial Services
Office Address:
M Block 305, Appasamy Bloomingdale Apartments
East Main Road, Shankar Nagar,
Pammal, Chennai - 600 075
Mobile: 98414 08824
Email Id: sampath.financialplan@gmail.com
ARN 246089
15 Years of Experience in Mutual Fund Industry (Customer Service and
Operations)
Disclaimer: Mutual Fund investments are subject to
market risks, read all scheme related documents carefully. The past performance
of the mutual funds is not necessarily indicative of future performance of the
schemes.
