When it comes to securing your child’s future, two options often discussed by parents are Sukanya Samriddhi Yojana (SSY) and Children’s Mutual Funds (CMF). Both are popular choices, but they serve different purposes and carry different benefits and risks. Understanding these can help you make a more informed decision.
SSY is a government-backed savings scheme introduced under the Beti Bachao, Beti Padhao campaign. It is designed exclusively for the financial well-being of girl children, offering fixed interest, tax benefits, and long-term stability. In contrast, CMFs are mutual fund schemes specially structured to address future expenses like education or marriage. They are market-linked, meaning their performance depends on underlying assets, but they provide flexibility and the possibility of higher returns.
Parents often face the dilemma: should they choose the stability of SSY or the growth potential of CMFs? The answer depends on your financial goals, risk appetite, and investment horizon.
In this blog, we’ll break down the features, pros, and limitations of both, helping you weigh which option aligns best with your child’s future needs. Remember, it’s always wise to back financial decisions with research and, if needed, consult a SEBI-registered financial advisor.
Sukanya Samriddhi Yojana and Children’s MF: The Dynamic Duo of Money Marvels
In today’s financial landscape, SSY and CMF emerge as important tools to help parents plan their child’s future. However, every financial decision should be backed by thorough research, and if in doubt, one must consult a SEBI-registered financial advisor before investing.
Both have unique strengths designed for child-centric financial needs.
What is Sukanya Samridhi Yojana?
The Sukanya Samriddhi Yojana (SSY) is a government-backed small savings scheme designed specifically for the financial security of girl children. Launched on 22 January 2015 as part of the Beti Bachao, Beti Padhao campaign, the scheme encourages parents to build a long-term fund for their daughter’s education and marriage needs.
| Government of India saving scheme for parents of girl children. | |
| Country | India |
| Launched | 22nd January, 2015 |
| Status | Active |
Who can open an account?
- Parents or legal guardians of a girl child under the age of 10.
- Each girl child can have one account, and a family is allowed up to two accounts (exceptions apply for twins/triplets).
- Accounts can be opened at authorised banks or post offices.
How does it work?
- Deposits: Minimum ₹250 per year; maximum ₹1.5 lakh per financial year. Deposits can be made in multiples of ₹50, through cash, cheque, or online transfer (where available).
- Deposit period: Contributions can be made for 15 years from the date of opening.
- Interest: Compounded annually, credited on 31 March. The Government notifies rates every quarter. For July-September 2025, the rate is 8.2% p.a. (subject to change in future notifications).
- Lock-in: The account matures 21 years after opening. If not closed, the balance earns savings account interest until withdrawal.
Withdrawals & closure
- Up to 50% of the balance (as at the end of the previous financial year) can be withdrawn once the girl turns 18 or passes Class X, whichever is earlier, for higher education.
- The account can also be closed at or after marriage (post 18 years of age).
- Premature closure is allowed only under special circumstances, such as the death of the account holder or life-threatening illness.
Tax treatment
SSY enjoys EEE status, and deposits qualify for deduction under Section 80C, and both interest earned and maturity proceeds are exempt from tax (as per current rules).
Note: Interest rates are subject to quarterly revisions by the Government. This section is for educational purposes only and does not constitute financial advice. Please consult a SEBI-registered advisor before making investment decisions.
A quick summary.
- Parents or the legal guardians of the girl child (under the age of 10) can open an account on her behalf.
- One family can only have two such accounts. However, in selective cases where the family happens to have twins or triplets, they can seek a larger number of accounts.
- One can create an account and get registered at any Indian post office or authorized bank.
- The minimum amount for a fixed deposit is set at Rs. 250, then keep adding it in multiples of Rs. 100, up to Rs. 1,50,000 per year.
- The interest rate is 8.2% per year (as of January-March 2024 data).
- One can avail tax deductions on deposits under Section 80C, up to Rs. 1,50,000.
- The policy matures after a period of 21 years, or when the girl turns 21 (whichever happens first).
- At the age of 18, she can avail herself of half of the amount for her educational needs.
What are Children’s Mutual Funds?
Just as the name suggests, the “Children’s mutual funds” are special investment funds, curated specially for your little superheroes, specially designed to formulate their financial needs, such as education expenses, marriage, or other future financial emergencies.
These funds are structured for long-term needs with a distant vision, aiming to provide steady growth along with a comfy cushion to many financial demons.
While SSY is government-backed with fixed returns, Children’s Mutual Funds are market-linked and therefore carry different risks and opportunities. Let’s look at them in detail.
Here’s a breakdown:
- Children’s mutual funds focus on long-term growth to meet financial needs.
- Parents or guardians make the account to manage them only till their child reaches adulthood (there’s no restrictions on the gender in most funds).
- These funds have a minimum lock-in period of 5-years.
- Regular contributions help grow the fund, with investments in stocks, bonds, and other assets to manage risk.
SSY vs. CMF: Features, Perks, & Other Details
Imagine this as a grand premiere, with SSY and CMF strutting down the cosmic red carpet. Let’s peek behind the sparkly curtain and see what they’re packing, the cool features, perks, and the occasional money quirks.
| Parameters | Sukanya Samriddhi Yojana | Children’s Mutual Fund |
| Launch Year | 2015 | Early 2000s |
| Purpose | Promote education and financial security for girl children. | Investment for child’s future, irrespective of gender. |
| Eligibility | Parent or legal guardian, girl child up to 10 years old. | Anyone with a child (up to 18 years of age). |
| Lock-in period | 21 years from the date of account opening. | 5 years from the date of investment. |
| Taxation | Interest and withdrawals are tax-free. | Capital gains taxed as per investor’s tax slab. |
| Withdrawals | Partial withdrawal allowed after the child turns 18, limited to 50% for marriage. | Premature withdrawals allowed after 3 years, with penalty. |
| Nomination | No nomination facility available. | All mutual fund houses offer a nomination facility. |
| Investments Per Year | |
| Sukanya Samriddhi Yojana (SSY) | Children’s Mutual Funds |
| Minimum Initial deposit: Rs. 250 | Minimum SIP amount: Rs. 500 per month |
| Subsequent deposits: Multiples of Rs. 100 | Minimum lump sum investment: Rs. 5,000 |
| Maximum investment per year: Rs. 1,50,000 | No upper limit on the investment amount |
Before you even start wondering about the pros and cons, the same have been added in a table below for your quick reference:
| Aspects | Sukanya Samriddhi Yojana (SSY) | Children’s Mutual Fund (CMF) |
| Pros | ||
| Returns | Fixed and stable returns. | Potential for higher returns, depends on capital markets |
| Tax Benefits | Interest and withdrawals are tax-free. | Taxation based on the investor’s slab. |
| Market Stability | No risk of market volatility. | Market volatility exists. |
| Nomination Facility | Not available. | Nomination facility available. |
| Cons | ||
| Investment Flexibility | Limited flexibility in investment choices. | Multiple investment options available. |
| Nomination Facility | No nomination facility. | Premature withdrawal penalties may apply. |
More to the Briefs
Choosing between Sukanya Samriddhi Yojana (SSY) and Children’s Mutual Fund (CMF) boils down to what you value the most in securing your child’s financial future. SSY offers stability with a fixed interest rate of 7.6%, tax-free returns, but it comes with 21-year commitment and is exclusively for girls up to 10 years.
On the flip side, CMF provides flexibility with various investment options, potential for higher returns, and a shorter 5-year commitment. Your decision should align with your risk tolerance, investment goals, and the level of commitment you’re comfortable with. It’s about striking the right balance between stability and growth to pave the way for your child’s financial journey.
To be noted: Under SSY, you can’t set up SIPs, unlike CMFs where it’s allowed, making it more convenient and less burdensome.
Highlighting the Lesser-Known Details
Beyond the basics of SSY, there are intriguing details worth exploring. Notably, SSY accounts can be initiated not only at authorized State Bank of India (SBI) branches but also at designated post offices, providing a wider accessibility. Moreover, the account’s transferability between banks or post offices after a minimum of five years adds a layer of flexibility.
Surprisingly, SSY allows for premature closure in unfortunate circumstances like the girl child’s death, disability, or early marriage, offering an exit strategy. The option to link the account to the girl child’s Aadhaar number introduces a modern touch.
Delving into the lesser-known aspects of CMF unveils a dynamic investment landscape. Contrary to assumptions, CMF investments are not immune to market risks, and returns may fluctuate based on specific mutual funds and market conditions. Noteworthy is CMF’s flexibility in diversification, allowing investors to spread risk across different funds, asset classes, and strategies.
CMFs cater to diverse investor preferences, offering investment avenues through Systematic Investment Plans (SIPs) for periodic contributions or lump-sum investments for those with a lump sum at hand. Embracing modernity, CMFs facilitate online investments, allowing investors to manage portfolios from the comfort of their homes.
In essence, exploring these lesser-known facets adds depth to the understanding of SSY and CMF. SSY’s broader accessibility and unexpected exit options contrast with CMF’s dynamic approach to market conditions and versatile investment strategies. As investors navigate these nuanced details, they gain insights crucial for aligning their choices with financial goals, risk tolerance, and investment preferences.
Conclusion: What to Choose between SSY and CMF?
Planning for a child’s financial future is never a one-size-fits-all decision. Both Sukanya Samriddhi Yojana (SSY) and Children’s Mutual Funds (CMFs) bring their own strengths to the table, but they work in very different ways. SSY, being a government-backed scheme, offers fixed interest, tax benefits, and long-term stability. It is designed specifically for the financial well-being of girl children and can be a disciplined way to build savings over time.
On the other hand, CMFs provide flexibility, shorter lock-in periods, and the potential for higher returns, though they come with the inherent risks of market-linked products. For some parents, the predictability of SSY may feel reassuring, while others may value the growth opportunities and choice that come with CMFs.
Ultimately, the decision depends on your family’s financial goals, time horizon, and comfort with risk. In many cases, a mix of both approaches can strike the right balance, offering stability through SSY and growth potential through CMFs. The key lies in aligning the investment strategy with your child’s future needs.
Disclaimer: Investments in securities market are subject to market risks. Read all the related documents carefully before investing. The securities are quoted as an example and not as a recommendation.
FAQs
Which is better Sukanya or mutual fund?
Well, it depends on what you’re aiming for. Sukanya Samriddhi Yojana (SSY) is backed by the government, offering fixed returns and tax benefits. On the flip side, mutual funds, like Children’s Mutual Funds, can bring more flexibility and potentially higher returns. So, it boils down to your preferences, risk appetite, and financial goals.
Which fund is best for kids?
Choosing the best fund for kids depends on your investment goals and risk tolerance. Children’s Mutual Funds are tailored for this purpose, offering flexibility and potential growth. Specific funds like Tata Young Citizens Fund or ICICI Pru Child Care Fund-Gift Plan are worth exploring. Always consider your child’s future needs and your risk of comfort before deciding.
Is it worth investing in Sukanya Samriddhi Yojana?
Absolutely, Sukanya Samriddhi Yojana (SSY) can be a solid choice for securing your girl child’s future. It provides fixed returns, tax benefits, and is backed by the government. Plus, it’s designed specifically for the financial well-being of a girl child. If you value stability and government support, SSY could be a worthy investment.
Which scheme is best for a girl child?
If you’re looking for a scheme exclusively for a girl child, Sukanya Samriddhi Yojana (SSY) fits the bill. It offers tax-free returns, government backing, and focuses on financial security for girl children. However, if you prefer more flexibility and potential for higher returns, exploring Children’s Mutual Funds could also be a wise move. Ultimately, it depends on your specific preferences and financial goals.
