Last Updated on August 27, 2017
Here is an illustration of Sukanya Samriddhi Yojana vs. PPF when used for a girl child’s education goal. It also serves to understand why liquidity is more important than higher interest rates.
Update: Current Sukanya Samriddhi Yojana rate is 8.3% and current PPF rate is 7.8% (the same 0.5% difference as assumed in the article). This does not change the conclusions of the article. One can now withdraw 50% after the child has pased 10th standard, however documentary proof of admission in another institution is necessary. I am farily certain you would like your child to finish school and not stop at 10th. So this rule is of no use to you.
Consider a couple with a girl child which would enter college at age 18. Some children enter college or get admitted to college before they turn 18. Using Sukanya Samriddhi Yojana for such children is a terrible idea unless you have some other source of income for college admission and first-year fees!
The couple can invest Rs. 8000* a month towards their child’s for a start. They believe that they can increase this amount by 10% each year. They are going to use the following asset allocation:
60% of monthly investment amount toward equity SIPs.
40% of monthly investment amount towards
- Sukanya Samriddhi Yojana –> SSY
- Public Provident Fund –> PPF
- Can you guess why I chose 8000? 🙂 Illustration will not change if you choose more or less.
Assumptions
- Asset allocation does not change until the child turns 18. This is impractical and simplistic, but does not harm the illustration in any way.
- No rebalancing is done (cannot be done without adding another instrument)
- PPF rate is fixed at 8.7%. SSY rate is fixed at 9.2%. These will vary each quarter from now on, but will not change the illustration if we assume SSY will always be higher than PPF by 0.5%. After all, it is a Beti Bachao yojana!
- Investment limit of Rs.1.5L a year will not change.
- Equity investment return is 12%.
Illustration: Child is 3 years old.
We will consider a case when the child is 3 years old when investments begin. Or the child turns 4 after 1 year of investing. The PPF will mature when the child turns 18 (and before she enters college)
This comparison cannot be made for an older child since the PPF will mature later and SSY is not liquid. The results will not change by much for a child which is younger.
Read more: The case for not investing in the Sukanya Samriddhi Account
PPF:
Tenure 15 years.
Investments can be made for 15Y.
Return 8.7% (fixed only for illustration)
Maturity amount = 21,90,687 (21.90 Lakhs)
SSY
Investments can be made for 14 years only (15th-year full investment in equity only)
50% of closing balance after the child turns 18 can be withdrawn each year.
Return 9.2% (fixed only for illustration)
Amount available at age 18: 10,55,753 (10.55 Lakhs). After this 50% of the closing balance can be withdrawn up to age 24 when the account will be closed.
Equity investment
Investments can be made for 15Y.
Return 12% (fixed only for illustration)
Equity Corpus when child is 18: 43,44,725 (43.44 Lakhs)in case of SSY route (higher investment in 15th year)
In case of PPF route, equity corpus is: 41,81,402 (41.8 Lakhs)
When the child is about to enter college, SSY+ Equity corpus will only be about 84-85% of the PPF+Equity Corpus.
I don’t know about you, but to me, this is a serious constraint. For me, liquidity is priceless. I need to get my hands on much as money as possible to be deployed the way I want when my child enters college. There is no basis for me to claim that I can make do with a 15% lower corpus several years before the actual expense!
The PPF corpus upon maturity will only be Rs. 79,812 lower than the SSY closing balance (before withdrawal when child is 18).
This is a pretty small amount – just 22% of the annual investment the couple would make that year! This fact that PPF is 100% liquid after 15 years compensates for this (imo, of course)
Sure some amount is available from SSY when the child turns 19, 20,… but this is still only 50% of the closing balance (which is already 50% lower). It is no guarantee that this amount will be enough for fees in the 2nd, 3rd year etc.
The Sukanya Samriddhi Yojana is meant for those folk who will not educate their daughters but marry them off at or before 18. Which is why there is a 50% withdrawal limit at 18. The govt wants to Bachao such Betis. If you are reading this, your Beti probably needs rescuing from this ill-liquid policy!
If you have already opened this account, suggest you tag it to your retirement goal, invest regularly and let it mature after 21 years from date of opening. For retirement, it is a very good fixed income instrument. Not for your child’s education!!
Explore the site! Search among our 2000+ articles for information and insight!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video! ⇐ More than 1000 investors and advisors use this!
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 2800 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 675 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
My new book for kids: “Chinchu gets a superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)Free android apps
- All calculators from our book, “You can be Rich Too” are now available on Google Play!
- Install the Financial Freedom App! (Google Play Store)
- Install Freefincal Retirement Planner App! (Google Play Store)
- Find out if you have enough to say "goodbye" to your employer (Google Play Store)