Difference between Sukanya Samriddhi vs Children Mutual Funds

With the cost of living rising consistently, it is wise to start investing in your child's future from a young age. You can now find an extensive range of investment options solely dedicated to helping you secure your child's financial future. Sukanya Samriddhi Yojana (SSY) and children's mutual fund (CMF) are two such popular investments.But if you want to choose one, what should be your decision? Understanding these schemes and knowing the biggest Sukanya Samriddhi vs children mutual fund differences will make the selection easier. Here’s everything you should know about these investment options-

Sukanya Samriddhi Yojana or SSY is a small deposit scheme exclusively designed for a girl child under the government’s “Beti Bachao, Beti Padhao” campaign. The scheme aims to help parents with their daughter’s higher education and marriage expenses.Under the scheme, parents can open an SSY account for their girl child by depositing only Rs. 250. The account can be opened from the time the girl is born to when she turns 10 years old. After the initial minimum deposit of Rs. 250, annual deposits ranging from Rs. 250 to Rs. 1.5 lakh can be made into the account every year.The deposit earns interest that is revised by the government every quarter. The SSY account remains operative until the girl child is 21 years old, after which the entire amount can be withdrawn. For her higher studies, up to 50% of the deposit can also be withdrawn when she turns 18 years old.

A children's mutual fund (CMF) is an open-ended mutual fund scheme designed to help parents meet child-specific financial goals, like their higher education, marriage, etc. These funds generally invest your money in equity and debt instruments to offer a combination of long-term wealth creation with stability.Children's mutual funds with more than 60% of the portfolio invested in equity are known as equity-oriented funds. Schemes with more than 60% of the portfolio dedicated to debt instruments are known as debt-oriented funds. The minimum investment amount in these mutual funds is generally Rs. 500 or Rs. 1,000.Children's mutual funds come with a lock-in period of 5 years or until the child becomes an adult, whichever is earlier. As there is a penalty of up to 4% on premature withdrawals, these schemes prove ideal for long-term goals like securing your child’s future.

Here’s a brief Sukanya Samriddhi vs children mutual fund comparison to help you choose the best-

• Eligibility The SSY account can be opened only for a girl child from the time of her birth to when she turns 10 years old.CMF, on the other hand, can be an excellent investment option for a girl or boy child. You can invest in a CMF from the time the child is born to when they turn 18 years old.
• Investment Amount You can open an SSY account with Rs. 250. In the following years, you can deposit any amount from Rs. 250 to Rs. 1.5 lakhs. If you fail to deposit at least Rs. 250 every year, you’ll have to pay a penalty of Rs. 50 for every default year.With CMF, parents can deposit a minimum amount of Rs. 500 or Rs. 1,000. There is no upper limit on the investment amount. Also, unlike SSY, it is not necessary to invest in CMF every year. You also have the option to invest a lump sum amount or start a SIP (Systematic Investment Plan).
• Maturity The SSY account matures when the girl child is 21 years old, after which the entire deposited amount plus the accumulated interest can be withdrawn, and the account is closed. However, she can take control of the account once she turns 18 years old. It is also possible to withdraw up to 50% from the SSY account when the girl child turns 18.Children’s mutual funds do not come with any maturity. You can remain invested as long as you like. However, even in CMF, the girl or boy child can take control of the account once she/he turns 18 years old. There is also a lock-in period of 5 years in CMFs.
• Risk As SSY is a government-backed scheme, the returns are fixed and stable. The government adjusts the interest rate every quarter.CMFs, on the other hand, invest your money in equity and debt instruments. As a result, these funds are subject to market fluctuations. The returns are neither fixed nor stable. However, the fluctuations are not that intense in the case of debt-oriented funds.
• Returns The current interest rate of SSY is 7.60% p.a. The yearly interest is added to your SSY account and can only be withdrawn once the girl child turns 18 years (50%) or 21 years old.As children mutual funds invest in equity and debt, the returns depend on the market conditions. But in the longer run, CMFs, especially equity-oriented schemes, can deliver higher returns than SSY.
• Taxability The deposited amount, interest earned, and maturity proceeds are tax-free in SSY. The scheme is also eligible for 80C deductions. Parents can deposit up to Rs. 1.50 lakhs in a financial year in an SSY account and claim a deduction on the amount while filing tax returns.CMF investment also qualifies for 80C deductions of up to Rs. 1.5 lakhs in a financial year. However, tax is applicable on the maturity proceeds.

Both SSY and CMF have their advantages and limitations. While SSY is risk-free and highly tax-efficient, CMF can deliver higher returns in the longer run. Parents can consider dividing the funds into both schemes to get the best of both worlds.But if only one needs to be selected, focus on your risk appetite to make the decision. If you are looking for steady and stable returns, you can invest in SSY. But if you don’t mind the risk, CMF can be an excellent choice. If you cannot decide even after going through these differences, you can always consult a professional investment advisor.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.