How to choose between a Public Provident Fund & Sukanya Samriddhi Yojana

All decisions with regard to investments are to be executed after careful consideration of the risks and benefits involved. However, this is to be done before any financial decision is made. Factors like the return on investment, capital needs, and risks are all to be taken into account when looking to structure your portfolio. With differing risk appetites and liquidity requirements of individuals, one may opt for risker investments like stocks, NFTs or cryptocurrencies, or choose to pursue relatively safer options provided by the government.

Hence, for those looking to increase or looking to enter government-backed securities, a few options worth considering include the likes of Sukanya Samriddhi Yojana, and Public Provident Funds, to name a few. The intent of such government initiatives is to improve the quality of choices made available to retail investors and cater to the needs of investors looking to park their hard-earned money in relatively safer venues. Both these schemes have their own set of advantages and disadvantages that will be covered as part of this article.

How to Choose Between Options Like Public Provident Fund & Sukanya Samriddhi Yojana

When discussing available options in the market backed by the government, the two prominent options tha come to mind are Public Provident Fund & Sukanya Samriddhi Yojana. However, when choosing between the two, key factors would need to be weighed before proceeding with the investment. 

Public Provident Fund (PPF) is a scheme introduced by the government of India. It is a tax saving in nature, where the interest accrued by investors is declared on a quarterly basis and paid out by the government. 

On the other side, we have Sukanya Samriddhi Yojana (SSY), which is a savings plan backed by the government of India introduced with the objective of female welfare in India. This is ensured by enforcing the opening of an SSY account to be done only in the name of a girl child. In contrast, any Indian citizen may opt to invest in a PPF. Given below is a comparative analysis of both these funds to give you a better idea-

All in all, PPF may be considered a more liquid investment, considering that investors may avail a loan against the amount. However, given its rate of interest, one could argue that SSY may provide better returns in the long run. Folks looking to invest in Child insurance plans may also look for this particular option, considering it is opened in the girl child’s name.

Given below is an in-depth analysis of the key factors mentioned above.

• In Terms of Eligibility-

An SSY account is to be opened in the name of a female. However, if she is a child, then her guardian may choose to open an account on her behalf. The ceiling age for opening an account is 10 years. However, in the case of PPFs, a resident Indian is free to opt for a PPF account. The minimum age is 18 years. In case minors below the age of 18 opt to open an account when the account is to be handled by their guardian.

• From Perspective of Interest Provided-

The rates provided by these government-backed securities are subject to change based on prevailing rates on government yields on bonds. The return on investment is fixed every quarter to enable investors to make their decisions. The interest rate provided by the government is compounded annually. 

In the case of PPFs, the rate of interest has been set to 7.1 for FY23. However, the interest provided is calculated based on the lower amount between the 5th and the last day of each month. The same holds true for SSY, however, the amount taken into consideration is the minimum balance between the 10th and the end of every month.

• Tax Benefits Provided-

In the case of tax benefits, both these plans tend to have a similar benefit. That is, both the plans have a tax exemption as stated in the Income Tax Act of 1961. The interest got by the investors is exempt from taxes. This is assuming that the withdrawal is done on maturity. Additionally, annual contributions to the fund also have tax benefits. That is, it reduces the net taxable income, thereby reducing the income tax levied by the government. 

However, there is a limit placed on the maximum contribution an individual can make in a given financial year. It is capped at 1.5 Lakh. 

Key Takeaways

Choosing between the two options is a matter of personal choice. PPF provides higher flexibility by providing the option of acting as collateral when looking for loans. Whereas, SSY tend to have a higher return on investment that benefits investors with a long-term horizon. In can an investor has excess capacity to invest, then they may certainly opt for both these government-backed schemes

Also read: Factors to Consider When Choosing A Child Life Insurance Plan

SBI Child Plan: Everything You Need to Know