PPF or SSY: Compare these nine points before investing

The most popular savings instrument for the parent of a girl child is Sukanya Samriddhi Yojana (SSY). Here one can put money for 15 years and get a good return when the girl attains the age of 21 years. For many, Public Provident Fund (PPF) is another saving instrument that can take the place of SSY. The interest rate of SSY currently fixed at 7.6%, while the rate for PPF is 7.1%. Both rates come up for revision very quarter. PPF has a lock in period for 15 years, the same as the tenure of SSY.

Money9 gives you a 9-point comparison between SSY and PPF.

1. Investment amount

For SSY one can  start with an investment of Rs 250 only, but PPF allows minimum investment of Rs 500 every financial year. For SSY, Rs 250 is also the minimum subscription amount every year.

But the investment limit is capped at Rs 1.5 lakh in a fiscal year for both the instruments.

2. Eligibility

For SSY, the parent or legal guardian can open an account on behalf of a girl child. However, the girl cannot be more than 10 years old. A new-born girl child is also eligible for SSY.

On the other hand, a minor PPF account can be open but jointly with any of the parents. The minor would be the second holder until she/he reaches 18 years of age.

3. Tenure

SSY ends when the girl attains the age of 21. But the beneficiary can withdraw 50% of her corpus at the age of 18 for higher education purposes. The person needs to invest for 15 years in SSY.

On the other hand, the minimum lock-in period for PPF is 15 years. After that one can extend it for a band of 5 years each.

4. Interest rate

Both SSY and PPF are debt instruments. They offer relatively low but safe and secure returns.

The interest rate of SSY is 7.6% and PPF is 7.1%.

Both the rates are revised quarterly by the central government. These rates are at the same level since April, 2020.

The interest for both SSY and PPF is compounded annually.

5. Tax benefit

PPF is a popular long-term investment avenue which gets the exempt-exempt-exempt (EEE) tax status. It means none — the principal, the interest and the maturity amount — is taxable.

SSY is also exempted under section 80C of IT Act. The interest that accrues against this account which gets compounded annually is also exempt from tax. The proceeds received upon maturity/withdrawal are also exempt from income tax.

6. Premature closure

In case the SSY account holder passes away, the account can be closed. However, the death certificate must be submitted.

The account can also be closed after the completion of five years from the date the account was opened. However, closure is allowed only under compassionate grounds such as treatment of life-threatening disease of the account holder/spouse or dependent children, or parents, or for higher education of the account holder, or dependent children.

The facility to prematurely close the PPF account is available after completion of full five financial years or afterwards. If you opt for premature closure of PPF account, a penal interest of 1% will be deducted from the rate at which interest was credited.

7. Number of accounts

A person has only one SSY and PPF account. Multiple SSY account opening is not possible against the same name.

If anybody has multiple PPF accounts, the person should close an account as multiple PPF account opening is not permissible according to the law of the land.

8. Loan

No loan facility is available for a SSY account, whereas a loan amount up to 90% of the total corpus might be claimed after maintaining a PPF account for minimum five  years.

PPF and SSY both can be operated from a commercial bank or post office.

9. Penalty

In case the minimum amount is not deposited, a fine of Rs 50 is levied. If a default account is not activated within 15 years from the date of account opening, the deposit made before the default will only earn the standard savings account interest rate.

On the other hand, failure to deposit the minimum amount in PPF account of Rs 500 per financial year leads to the PPF account being designated ‘inactive’. In that case, you would have to submit a written application to the bank or post office to revive it.

You would have to pay a penalty of Rs 50 with a minimum annual contribution of Rs 500.