Which Is Better for Your Child’s Education: Sukanya Samriddhi Yojana or Children’s Mutual Funds?

SABAPATHY NARAYANAN
Mutual Fund Distributor & Retirement Advisor (NPS)
Phone: 94440 67567 / 98842 91317
AMFI ARN: 46986
NPS Registration No.: RAN00000490I

A Safe Savings Option or Long-Term Wealth Creation? Key Factors Parents Should Consider When Investing for Their Child’s Higher Education

Ramesh, who lives in Chennai, has a two-year-old daughter. He decided to start saving early for her higher education. However, he was confused about whether to invest in the Sukanya Samriddhi Yojana (SSY) or a Children’s Mutual Fund.

One of his friends advised him, “Since SSY is a government-backed scheme, investing in it is safe.” Another friend suggested, “Education costs are rising rapidly. Therefore, you should invest in equity mutual funds to earn potentially higher returns over the long term.”

In reality, both options have their own advantages. The right choice depends on the child’s age, the time available before the education expenses arise, and the family’s financial situation.

Sukanya Samriddhi Yojana (SSY)

The Sukanya Samriddhi Yojana is a small savings scheme introduced by the Central Government to secure the financial future of girl children. Parents or legal guardians can open an account in the name of a girl child from birth until she completes ten years of age. Only one account can be opened for each girl child. Generally, a family can open accounts for up to two girl children.

Under this scheme, the minimum annual deposit is ₹250, while the maximum is ₹1.50 lakh. There is no requirement to deposit money every month. Currently, the scheme offers an annual interest rate of 8.2% for the October–December 2026 quarter. The Central Government may revise the interest rate once every three months.

Deposits have to be made for the first 15 years from the date of opening the account. The account matures after 21 years. Once the girl child turns 18 or passes Class 10, whichever is applicable under the scheme's rules, up to 50% of the accumulated amount can be withdrawn for higher education expenses, subject to prescribed conditions.

Since both the principal and interest are backed by the government, SSY is a suitable option for parents who prefer safe and assured returns.

Children’s Mutual Funds

Children’s Mutual Funds are mutual fund schemes designed to meet the future financial needs of children. Parents or legal guardians can invest in these schemes in the name of their children. These funds invest in equities, debt instruments, or a combination of both.

Equity-oriented schemes offer the potential to generate higher returns over the long term. However, the value of investments may decline during stock market downturns. Therefore, returns are not guaranteed.

Generally, these schemes have a lock-in period of five years or until the child turns 18, whichever is earlier. However, the specific conditions may vary from one scheme to another.

Key Differences Between the Two Options

Feature	Sukanya Samriddhi Yojana	Children’s Mutual Funds
Who can invest?	Girl children only	Both boys and girls
Nature of investment	Government-backed savings scheme	Market-linked investment
Returns	Interest rate announced by the government	Depends on market performance
Investment risk	Very low	Varies depending on the scheme
Investment limit	Maximum ₹1.50 lakh per year	Generally, no common upper limit
Investment period	Deposits for 15 years	Depends on scheme rules
Maturity period	21 years	Depends on the scheme
Return guarantee	Yes	No

Which Option Should You Choose for Your Child’s Education?

The child’s age and the time available before the education expenses arise are important factors.

For example, if a child is five years old, parents may have another 12 to 13 years before higher education expenses begin. For such a long-term goal, equity-oriented mutual funds can be considered.

However, if the money is required within the next three or four years, investing a substantial amount in equity-oriented schemes may not be appropriate. In such situations, it is better to gradually move the investments towards safer options.

Education costs also increase due to inflation. For example, if a course costs ₹10 lakh today and education inflation averages 7% annually, the same course could cost approximately ₹19.67 lakh after ten years.

Therefore, parents should consider education inflation while deciding how much to invest.

Can You Invest in Both Options?

Yes. If financially feasible, parents can invest in both schemes to balance safety and growth potential.

For example, if a family sets aside ₹10,000 every month for a child's future, a portion can be invested in the Sukanya Samriddhi Yojana and the remaining amount in a suitable long-term mutual fund scheme.

This approach helps combine the security of a government-backed savings scheme with the potential for wealth creation through market-linked investments.

Investments in SSY qualify for tax benefits under Section 80C of the Income Tax Act under the old tax regime. The interest earned and the maturity proceeds are also tax-exempt.

In the case of mutual funds, capital gains tax depends on the type of scheme and the investment holding period.

Finally, Let Your Financial Goal Guide Your Investment Decision!

For parents seeking safe, long-term savings for their girl child, the Sukanya Samriddhi Yojana is a good option. On the other hand, Children’s Mutual Funds may be suitable for parents who have a long investment horizon and are willing to accept market-related risks.

Since the Sukanya Samriddhi Yojana is available only for girl children, parents planning for a boy’s education can consider options such as mutual funds, the Public Provident Fund (PPF), and other suitable savings and investment schemes.

First, define your child’s education goal. Next, determine the investment horizon. Finally, choose the appropriate investment option based on safety, return potential and risk.

The small savings you begin today for your child’s future can grow into a substantial education fund tomorrow!

For More Details & Investment Assistance

SABAPATHY NARAYANAN
Mutual Fund Distributor & Retirement Advisor (NPS)
Phone: 94440 67567 / 98842 91317
AMFI ARN: 46986
NPS Registration No.: RAN00000490I

With nearly 25 years of experience in financial services, Sabapathy Narayanan provides investment and financial services covering Mutual Funds, Specialised Investment Funds (SIF), and Insurance.

He also facilitates access to GIFT City investments, Portfolio Management Services (PMS), and Alternative Investment Funds (AIFs).

He provides investment and insurance services to NRIs as well, helping them with their investment and financial planning needs.

Hometown: Karaikudi, Tamil Nadu.

With extensive experience in the investment industry, he has helped many investors work towards building substantial wealth and continues to guide investors in their long-term financial journey.

Services include: