SSY Vs SIP: Guaranteed returns or market power? Which scheme will create a bigger fund for your daughter's future? See the calculation

Every parent wants to secure their child's future financially. If you are a father of a daughter, then you have two popular options - the government-guaranteed Sukanya Samriddhi Yojana (SSY) and market-linked mutual fund SIP. Understand the advantages and disadvantages of both and decide for yourself where you should invest.

Every parent dreams of securing their child's future at any cost. On the other hand, when you are the parent of a daughter, the responsibility for her increases even more. The worry of creating a good fund for her education and marriage haunts the mind. The government also runs a scheme to improve the future of daughters. The name of the scheme is Sukanya Samriddhi Yojana (SSY). This long term scheme is giving 8.2% interest, which is better than all the schemes of today.

But if it is compared to Systematic Investment Plan (SIP), then which scheme will be better in terms of funds. From where will the big fund be created? Trust the government's guarantee or test the power of the market. Know about it here.

First understand Sukanya Samriddhi Yojana (SSY)

SSY is a small savings scheme run by the government, which is specially made for daughters. It is a part of the 'Beti Bachao, Beti Padhao' campaign.

Its special features

Interest rate: Its interest rate is fixed by the government every three months. Currently it is 8.2%, which is better than many other fixed income schemes.

Who can open it: Parents or legal guardians can open this account in the name of a daughter below 10 years of age.

Investment limit: You can deposit a minimum of ₹250 and a maximum of ₹1.5 lakh in a year.

Investment period: You have to deposit money for 15 years from the time of opening the account.

Maturity: This account matures after 21 years. However, there is a relaxation to withdraw up to 50% of the amount for the daughter's education when she turns 18.

Tax benefit: It comes under the EEE (Exempt-Exempt-Exempt) category. Meaning, there is no tax on the money you invest, the interest earned on it and the entire amount received on maturity.

Security: There is 100% security in this as it is a government-backed scheme. There is no risk of your money sinking.

Now know what is Systematic Investment Plan (SIP)?

SIP is not a scheme, but a way to invest in mutual funds. In this, you invest a fixed amount every month in the mutual fund of your choice. This money is invested in equity (stock market) or debt (bond) market.

Its special features

Return: Its return depends on the performance of the market. It is not fixed. In the long run, a good equity mutual fund has given an average return of 12% to 15% or even more.

Flexibility: You can increase or decrease your SIP amount at any time, or even stop it. There is no lock-in period in this, you can withdraw your money whenever you want (although exit load and tax may be levied).

Power of compounding: In this, you get the tremendous benefit of compounding i.e. interest on interest, due to which your money grows rapidly.

Risk: Since it is linked to the market, there is risk in it. The return can be less or more than expected.

Tax: After one year, if you sell your investment and your profit is more than ₹1 lakh, then 10% Long Term Capital Gains (LTCG) tax is levied on that additional profit.

SSY vs SIP: The biggest question - where will you make more money?

Now coming to the most important question. Let's understand with an example. Suppose, you start investing ₹10,000 every month (₹1,20,000 annually) for your 1-year old daughter. We will see the total amount after 21 years.

Case 1: Sukanya Samriddhi Yojana (SSY)
Monthly investment: ₹10,000
Annual investment: ₹1,20,000
Investment period: 15 years
Total investment: ₹1,20,000 x 15 = ₹18,00,000
Interest rate (approximate): 8.2% (we are assuming it to be constant)
Maturity period: 21 years
Calculation: After depositing the money for 15 years, the deposit will continue to earn interest for the next 6 years. At the end of 21 years, you will get approximately ₹55,42,062 on maturity. This entire amount will be 100% tax free.

Case 2: Mutual Fund SIP
Monthly investment: ₹10,000
Investment period: 15 years (for comparison with SSY)
Total investment: ₹18,00,000
Estimated return: 12% per annum

Calculation: If you invest ₹10,000 every month for 15 years and get an average return of 12%, your fund will grow to around ₹47,59,314 in 15 years.

But wait, the story doesn’t end here. If we keep this money invested for another 6 years (total 21 years) (without doing any more SIPs) like in SSY, the power of compounding will work its magic.

At a 12% return on ₹47,59,314 for the next 6 years, your total corpus at the end of 21 years would be around ₹93,94,042.

The result: The numbers show that SIP is a clear winner. The fund created through SIP is much higher than SSY.

So what is the final verdict? SSY or SIP?

Looking at the calculations, it seems that SIP is the best, but the decision is not so easy. It depends on your risk-taking capacity.

If you want zero risk

If you do not want to take any risk at all and want a guaranteed, tax-free return, then choose SSY blindly. You will definitely get a fixed amount for your daughter's education or marriage, it is guaranteed.

If you want wealth creation

If you can take a little risk and want to create a huge fund by beating inflation in the long term, then SIP is for you. There is no guarantee of return in this, but the potential to create wealth is very high.

The most sensible way - Hybrid model

It is wise not to choose any one. Divide your investments. You can open an SSY account for your daughter and also start a SIP. Invest the money in SSY with which you want to fulfill important goals like daughter's education at all costs. By investing in SIP, you can fulfill his/her big dreams, such as studying abroad or building a large wealth fund. This way you will also take advantage of guaranteed returns and will not miss the opportunity to multiply your funds manifold at the boom of the market.

Frequently Asked Questions (FAQs)

1. Can the money deposited in SSY be lost?

No. SSY is a government-backed scheme, so your principal and interest are 100% safe in it.

2. What happens if I stop SIP in between?

You can stop your SIP anytime. The money you have deposited till now will remain in the same fund and will keep getting returns on it. You can also withdraw that money if you want.

3. Is the SSY interest added to the account every year or is it received on maturity?

Interest is calculated annually and it is added to the balance of your SSY account every year. It gets the benefit of compounding.

4. Can I invest in both SSY and SIP together for my daughter?

Yes, absolutely. This is a very good strategy. You can invest a maximum of ₹1.5 lakh annually in SSY and as much as you can in SIP.

5. Is 12% return guaranteed in SIP?

No. SIP returns depend on market performance. It can be less than 12%, more or even negative for some time. 12% is a long-term average estimate given by many good funds.