Sukanya Samriddhi Scheme vs PPF

Sukanya Samriddhi Scheme vs PPF

Question - The National Pension Scheme recently got a facelift. Discuss similar steps taken for the Sukanya Samriddhi Scheme and how the former is more effective than the PPF scheme.

Sukanya Samriddhi Scheme: Modifications

Sukanya Samriddhi Scheme, a savings scheme for the girl child has just been modified to yield better interest rates

• The interest rate on deposits in the scheme was raised to 9.2% in 2015-2016 from 9.1% in 2014-2015

• The scheme has also received a boost in the latest Budget as investment in this account is eligible for tax deduction under Section 80C

• The Budget has also clarified that all payments including interest under the scheme was exempt from taxation

• Sukanya Samriddhi Yojana is therefore placed in the EEE(Exempt-Exempt-Exempt) category of investments at level with options like PPF/Public Provident Fund

• Sukanya Samriddhi Scheme is a regular interest earning fixed income scheme backed by the government

Sukanya Samriddhi Scheme vs PPF

PPF has been preferred as a fixed income scheme for conservative investors for building the long term corpus, but the Sukanya Samriddhi Scheme improves upon this.

• Based on a comparison of returns, the Sukanya Samriddhi Scheme at 9.2% this year is far better than the PPF which earns 8.7% interest, the same as last year

• Though rates are linked to yield on government securities and subject to change each year, the Sukanya Samriddhi Scheme will maintain 0.4-0.5 percentage points lead over PPF

• For the maximum allowed investment of INR 1,50,000, PPF will give a far lower corpus than Sukanya Samriddhi Scheme

• However, the PPF scheme scores on wider coverage as the Sukanya Samriddhi Scheme is only valid for parents or guardians of girls aged 10 years or less

• The account is for the future of young girls and there is no restriction in the PPF which can be opened by anyone

• The PPF account can even be opened in the name of a minor child of any gender less than 18 years of age

• The maximum amount which can be deployed across the two schemes is the same i.e INR 1,50,000

• PPF is also more flexible as it runs for 15 years and it can be extended from that point onwards in blocks of 15 years

• Sukanya Samriddhi Scheme , on the other hand are is only allowing deposits for 14 years from the date when the account is opened and a further 21 years. Though account can be held for longer than this, additional deposits are not permitted beyond the 14 year limit

• Another drawback of the Sukanya Samriddhi Yojana is that the account closes once the girl is married after she turns 18

• Liquidity is also more in the PPF; partial withdrawal is allowed following 5 years from the opening of the account

• Moreover, loans up to a specified extent can be taken against PPF balance

• Between the the 3rd and 6th financial year from the year of the account opening.

• As against this, there is no scope for loans under the Sukanya Samriddhi Scheme and withdrawals are not allowed till the girl child has turned 18

• Following this, 50% of the balance in the account at the end of the previous financial year can be withdrawn to fund higher education

While the Sukanya Samriddhi Scheme beats the PPF when it comes to returns, PPF offers better options when it comes to coverage, flexibility and liquidity

Facts and Stats

About Sukanya Samriddhi Scheme

• Sukanya Samriddhi Scheme was notified by the Ministry of Finance on 2/12/2014

• Scheme became operational through notification of Sukanya Samriddhi Account Rules, 2014.

• As per this scheme, the depositor is the guardian or parent who opens the account on behalf of a minor girl child and deposits amount in account opened under the scheme

• Scheme indicates only one account can be opened for each girl; depositor cannot open multiple accounts for the girl child under this scheme.