Can SSY be a game-changer? Give ELSS a try

Whenever we discuss about investing for our daughters’ future, Sukanya Samriddhi Yojana is inevitably referred to. This scheme offers the highest interest rate of 8.2%, compared to other small savings schemes. Up to ₹1.5 lakh can be deposited annually. You also get a tax exemption under Section 80C. Additionally, the entire amount received on maturity under the Sukanya Yojana is tax-free. While one may be drawn to the higher interest and tax benefits, it might not always be the right investment.

So, Why shouldn’t Rajan invest in the Sukanya Samriddhi Yojana? Let’s find out…

In Sukanya Yojana, an account can be opened for the daughter for up to 10 years. If your daughter is also 10 years old, you can open the account,  and needs to invest for 15 years and the scheme matures after 21 years from the date of investment.  Suppose you opens the account in January 2024; the maturity would be in 2045. By that time, your daughter would be 31 years old, she would have potentially surpassed her time when she would be doing her higher education.

You can withdraw 50% of the accumulated amount for her education when she turns 18. If you starts investing 1.5 lakh rupees annually in Sukanya Account, the total investment would be Rs 12 lakh when she would be of 18. Considering the current 8.2% interest rate, the total amount after 8 years could be 16.95 lakh rupees. You would be able to withdraw 50% of the accumulated amount, which would be 8.47 lakh rupees.

However, this amount may not fully cover her higher education fees due to inflation. Without premature withdrawal, the corpus could grow to around 70 lakh rupees by 2045, with the power of compounding.

Financial expert Balwant Jain says Sukanya Yojana is a good option for a daughter’s education and marriage. Although , he emphasized the importance of starting it early on. With a long lock-in period, it’s not suitable for meeting your short-term needs. You should invest in the scheme only if you are long term investor.

If you are a regular investor, equity mutual funds can prove to be a better option. Even in challenging market conditions over a 15-year period, an annual return of 12% is possible. Choosing ELSS can also help save taxes.

If you invest 1.5 lakh rupees annually in equity mutual funds, you could accumulate around 29 lakh rupees in 10 years. This is assuming  an estimated 12% return. In contrast, investing in SSY for 8 years would yield only around 8.47 lakh rupees. Continuing the annual 1.5 lakh rupees investment in equity mutual funds for 15 years would result in a total investment of 22.5 lakh rupees. You can accumulate a potential sum of 63 lakh rupees. If withdrawn after 21 years, this amount could grow to 1.24 crore rupees. Which would prove to be beneficial in fulfilling your  daughter’s dreams.

While Sukanya Samriddhi is a good plan because of attractive interest and tax savings benefits, equity mutual funds outshine it in terms of returns. If your daughter is older, opening a Sukanya account for her higher education might not be a wise decision.  Investing in equity mutual funds remains a better option.