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Sukanya Samriddhi vs Equity Mutual Funds: Which One Should You Choose?

Adhil Shetty


As a step to empower the girl child, the Narendra Modi government introduced the ‘Beti Bachao, Beti Padhao’ (Save the Daughter, Educate the Daughter) initiative in 2015. The Sukanya Samriddhi Yojana (SSY) is an offshoot of this campaign allowing you to invest smartly to secure the future of your daughter.

Apart from giving you assured earnings, this investment avenue is lucrative for you as a parent too as it allows you to claim tax exemptions. Though there’s more to the scheme, you may want to compare it with a market-linked option like equity mutual funds to gauge whether the returns from this scheme will be time appropriate and inflation proof. Here’s how you can make a more informed decision.

What Is The Sukanya Samriddhi Yojana?
In order to ensure that every parent comfortably pays for their daughter’s education and marriage, apart from other expenses, the Sukanya Samriddhi Yojana was brought in to action. Promising financial security and independence for every girl, an SSY account can be opened in any post office or at selected banks in India. During 2015 and 2016, SSY used to fetch a 9.2% interest per annum; however, after a revision this September, you can get an 8.5% interest per annum. You can start an SSY investment for up to two daughters as soon as they are born. If you miss the bus, and a few years pass before you make an investment, don’t fret. You can start an SSY investment until the girl child turns 10.

What Are Equity Mutual Funds?
Equity mutual fund is a mutual fund variant that invests your money in stocks. This means that your fund manager will play your investment directly in the market for a high-interest gain. Your equity mutual fund investment is capable of earning 12% to 15% interest on a yearly basis, but is also subject to risk.

How Does Sukanya Samriddhi Scheme Fare Against Equity Mutual Funds?

Interest Earnings And Taxation: You can get the highest guaranteed tax-free earnings with SSY, which comes with an EEE status. In case of equity mutual funds, the interest earnings are of course higher, but you expose your money to risk too. You are taxed as per your MF holding duration– either short term or long term. So, in case of long term capital gains above Rs. 100,000, you will be taxed at the rate of 10% without the indexation benefit after one year of investment. Further, in SSY, you have to invest a minimum of Rs.250 every year to a maximum of Rs.1.5 lakh.  You also have to continue paying instalments for up to 15 years from the day you start your SSY account to keep it active. With mutual funds you can plan whether you want to invest a lump sum or take the SIP route by investing as low as Rs.500 every month.

Use: When it comes to SSY, you can prematurely withdraw funds only to fund your daughter’s education and marriage expenses or to fulfil a medical emergency by submitting written proof. Unlike SSY, your investment in equity mutual funds does not have any restriction when it comes to usage. This means that you can put your matured returns to use for any of your daughter’s personal or professional requirements.

WithdrawalsIn case of SSY, premature withdrawals are possible only after the girl child becomes 18 years old or after 5 years of account opening in extreme cases. You can withdraw up to 50% of your total savings to fund either the education or marriage expenses for your daughter. On the other hand, if you’ve invested in non-tax saving equity mutual funds, you can withdraw the funds from your investment anytime you want by paying an exit load. Liquidity is certainly a big plus; however, tax-saving equity mutual funds (ELSS) come with a minimum lock-in period of 3 years.

Maturity: Even though your SSY account will only mature after 21 years from its start date, all along the 15th year to the 21st year, your SSY investment will fetch interest earnings on its own based on what you have already deposited. This frees your funds, which you can use to start another investment in due course. When you take the SIP route, there’s no break in the payment of your investment amount all along the tenor. Plus, experts generally advise you to stay invested in equity mutual funds for at least 5 years for gains.

Return assurance: Your equity mutual fund investment is market-linked so the assurance of returns are lower as compared to SSY. Your investment in SSY does not only fetch guaranteed returns owing to its fixed interest earnings, but it is also backed by the government. This makes it more reliable.

Keeping these differences in mind, weigh your responsibilities alongside your risk appetite to decide what suits you the best. The best case scenario would be to invest in both and diversify your portfolio so that your daughter has the financial backing she needs to achieve all her dreams.

The writer is CEO, BankBazaar.

BankBazaar.com is a leading online marketplace in India that helps consumers compare and apply for credit card, personal loan, home loan, car loan, and insurance.