Saving for the girl child? Choose Equity mutual funds over Sukanya Samriddhi

In India, having a daughter born in the family is akin to having Goddess Lakshmi in your home. Ironically though, a lot of these kids are not treated like goddesses in our country. However, with increased awareness and Prime Minister’s “Beti Bachao Beti Padhao” initiative gaining momentum, there has been an enhanced focus towards the girl child and her future.  

Sukanya Samriddhi Yojana (SSY), introduced by the Government, is one such policy that has been created solely with the purpose of accumulating funds for the girl child’s future education and marriage. While the sentiment is much appreciated if you intend to build a corpus for your little girl, investing the same money in an equity mutual fund might prove to be a wiser choice. Here’s why-

When do we begin?

An SSY account can be opened for girls less than 10 years of age, not more. Also, you can open only one such account in the child’s name. In contrast, an equity mutual fund has no such restrictions. You start a SIP in any mutual fund irrespective of the child’s age and can have as many as you wish to have.

Let’s talk returns

SSY comes with the below two limitations-

  • You can invest up to only Rs 1.5 Lakh in any given year vis a vis no such investment limit for equity mutual funds
  • The interest rate is 8.5% per annum against the 15% returns you can expect from equity mutual funds

Let us hypothetically take an example of you investing Rs 5000 per month in SSY and an equity mutual fund parallelly.

As we can see, for the same amount of investment made, an equity mutual fund yields almost 200% of the returns provided by SSY. This leaves very little room for any doubt. As the power of compounding weaves its magic in your SIP investments, your money starts to grow exponentially in an equity mutual fund.

Maturity and Tenure

SSY allows the partial withdrawal of the maturity amount only when the girl child is 18 years of age and full withdrawal at the age of 21 years. A partial withdrawal can be made and is subject to a lot of documentation proofs being submitted. In an equity mutual fund, the amount can be redeemed as and when required. Of course, the longer it stays the better returns you shall get but in case of contingency, the majority of mutual funds have no restrictions.

The tenure till which you have to invest in SSY to keep it alive is a minimum of 21 years from the start of the investment. Post this, you shall get no further interest on the maturity amount. However, an equity fund can be started or closed as deemed fit by the investor. Also, even if you stop investing in it, the money will keep compounding until such time you redeem it.

We, at WealthApp, try to break the age-old notions about investments with the aim of educating the modern-day investor. It is a clear choice between SSY and Equity mutual fund because the latter is more beneficial. If you have the right tolerance, you may even diversify within the equity mutual fund like large-cap equity funds or small-cap equity funds. For more such practical advice, you may get in touch with the financial advisors at WealthApp.


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