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Sunday, March 15, 2015

Sukanya Samriddhi Yojana (SSY / SSS) Vs Public Provident Fund (PPF)

Many parents plan to invest in the PPF and fixed deposits for their little one's education or marriage. Things could be changing here, especially if you are blessed with a fairy, rather than a brat :) The Sukanya Samriddhi Yojana (SSY) could just be a better alternative...read on...



Launch
The scheme - Sukanya Samriddhi Yojana (SSY), also called as Sukanya Samriddhi Scheme (SSS), was launched in January 2015 as part of the Prime Minister's Beti Bachao Beti Padhao initiative, was already eligible for deduction under Section 80C. The Budget for 2015 has now made the income from the scheme tax free, thus compelling us to compare it with our old warhorse - Public Provident Fund (PPF).

Interest Rate Vs PPF
The SSY is more attractive than the PPF because it offers a higher interest rate, though the interest rate of the SSY is also linked to the government bond yield. While the PPF offers 25 basis points higher than the yield of 10-year government bonds, the SSY will offer 75 basis points higher than the 10-year government bond yield for the previous year.
Under this scheme Interest rate is not fixed and Government will declare on yearly basis the Interest on accounts opened under these rules.
As an example, for 2014-15, the interest for PPF is 8.7% while the SSY offers 9.1%. 

Who can invest in SSY?
The SSY scheme is not open to everyone. An SSY account can be opened only by the parent or guardian in the name of a girl child not more than 10 years old. Only for this year, the government has offered a grace period of one year and allowed accounts to be opened for girls who will be 11 years old by 1 December 2015. Children born before 2 December 2003 are not eligible.  There is no such age limit for opening a PPF account, nor does this account differentiate between a boy and a girl child.

How to open an SSY account 
Accounts can be opened in any post office or designated branches of PSU banks 

How many accounts can be opened?
A parent can open only one account per girl child and for a maximum of two daughters.
The natural or legal guardian of the girl child shall be allowed to open third account in the event of birth of twin girls as second birth or if the first birth itself results into three girl children, on production of a certificate to this effect from the competent medical authorities where the birth of such twin or triple girl children takes place.

How much can be invested?
The minimum investment is Rs 1,000 and the maximum investment in a financial year is Rs 1.5 lakh and deposits can be made for 14 years after opening the account. 
Also, the combined investment in the two (or more) accounts cannot exceed Rs 1.5 lakh a year. It is the on the same pattern as PPF.
A penalty charge of Rs. 50 will be levied both in Sukanya Samriddhi Account and PPF if the minimum contribution is not made every year.

Number of Deposits
In an Sukanya Samriddhi Account, a minimum of Rs. 1,000 has to be deposited every year and the maximum limit is Rs. 1.5 lakh. And there is no limit on number of deposits either in a month or in a financial year.
In case of PPF, an individual but has to deposit a minimum of Rs. 500 in a financial year while the maximum limit is Rs. 1,50,000. And deposits can be made in lump-sum or in 12 installments.

Documents Required to Open the Account
Document required for opening Sukanya Samriddhi account are:-
  • Birth certificate of girl child
  • Address proof
  • Identity proof

Money Withdrawal
The account matures 21 years from the date of opening of the account, though up to 50% of the corpus can be withdrawn after the girl is 18 or gets married. If account is not closed after maturity, the balance will continue to earn interest as specified for the scheme from time to time. The maturity period of a PPF account is 15 years but it can be extended in blocks of five years. PPF also offers more flexible withdrawal options after 5 years of investment.

Premature closure of account
(1) In the event of death of the account holder. the account shall be closed immediately on production of death certificate issued by the competent authority and the balance at the credit of the account shall be paid along with interest till the month preceding the month of premature closure of the account , to the guardian of the account holder. 
(2) Where the Central Government is satisfied that operation or continuation of the account is causing undue hardship to the account holder, it may, by order for reasons to be recorded in writing, allow premature closure of the account  only in cases of extreme compassionate grounds such as medical support in life‑ threatening diseases, death, etc.

Taxation
In terms for taxation, deduction up to Rs. 1.5 lakh is allowed under Section 80C in both the Sukanya Samriddhi Account and PPF. Also, both the schemes qualify for tax-free status on withdrawal and interest income.

List of Authorised PSU Banks
List of Banks which have been authorised to open Sukanya Samriddhi Account are as below.
  • State Bank of India (SBI)
  • Bank of Baroda (BoB)
  • Punjab National Bank (PNB)
  • Bank of India (BoI)
  • Canara Bank
  • UCO Bank
  • United Bank of India
  • Andhra Bank
  • Allahabad Bank
  • Indian Bank
  • Corporation Bank
  • Central Bank of India
  • IDBI Bank
  • Dena Bank 

Conclusion
PPF scores over Sukanya Samriddhi Account in terms of liquidity (partial withdrawal facility) and other flexibility. But Sukanya Samriddhi Account could potentially give higher returns.
The choice between Sukanya Samriddhi Account and PPF is a trade-off between more flexibility and higher returns. PPF offers more flexibility while Sukanya Samriddhi Account can potentially give higher returns. Investors with surpluses can look at the distributing their investments in both the schemes.

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The book "From the Rat Race to Financial Freedom" has many such investment concepts explained in a very simple and uncomplicated manner, especially in the Indian context.

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