The Union budget this
time doled out a tax-free status on interest income and withdrawals to the
newly-launched Sukanya Samriddhi Scheme (SSC).
Investments in SSC are already eligible for deduction under Section 80C and the
move brings it on par with public provident fund (PPF), employee provident fund
(EPF) and life insurance in the basket of instruments that enjoy EEE (exempt,
exempt, exempt) benefits. With life insurance earning an internal rate of
return of 2-6 per cent, it would do well to compare SSC with PPF to know which
fares better.
Sukanya Samriddhi Scheme is a small savings scheme which was launched in
January this year under the prime minister’s ‘Beti Padhao, Beti Bachao’
campaign for girl child.
The SSC will offer a higher interest rate. Also, the interest rates are
flexible, and like PPF would be announced every year. The government has
announced an interest rate of 9.1 per cent for SSC for 2014-15, which is higher
than the 8.7 per cent offered by PPF. This means you earn 0.4 per cent more in
SSC. Experts anticipate that SSC would continue to offer a higher rate than the
PPF even in future.
On the returns, experts said, “Let us assume that an individual invests either
in PPF or in SSC an amount of Rs 50,000 per annum for the full tenure of 14
years. We have considered child age as three years. Let us take two scenarios:
Scenario A where SSC return on investment remains fixed at 9.1 per cent and
Scenario B where SSC return on investment reduces by 0.1 per cent for first
four years and then remain on par with PPF.
“Investments are made for 14 years but the account has been continued for 21
years. In Scenario A the person would end up with a corpus of Rs 15.59 lakh
after 15 years and Rs 24.10 lakh after 20 years. In Scenario B the person
builds a corpus of Rs 15.07 lakh in 15 years and Rs 22.87 lakh in 20 years. On
the other hand, the PPF Account will have a corpus of 15.58 after 15 years and
Rs 23.65 lakh after 20 years.”
Says Anil Rego, a certified financial planner, “While SSC offers higher interest
rate than the PPF, there is no liquidity in it. In PPF, partial withdrawals are
allowed from seventh year onwards but in SSC, one can withdraw up to 50 per
cent of the corpus after the account holder turns 18. You can also take a loan
against PPF which is not the case in SSC.”
Adds Pankaaj Maalde, a certified financial planner, “You cannot deposit after
14 years in SSC account but you continue to deposit in PPF account even after
15 years are completed. The difference is that PPF is a retirement fund while
SSC is meant’ for meeting marriage expenses of the girl child.”
“For those who do not want a higher exposure in equity, could invest in SSC.
But those who can take risk, it is advisable to invest in equity linked tax
saving scheme through SIP route as on a 10 year average equity linked savings
scheme would (can) give more than 15 per cent returns,” added Maalde.
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