After the announcement of Sukanya Samriddhi Account (SSA), questions are being raised about investing in Public Provident Fund (PPF) account or to opt for the SSA. In fact the investors can avail both the investment options, given a girl child in the family till she attains the age of 10 years.
Though a grace period of one year is provided for initial operations of the scheme, this account cannot be opened if the age of a girl child is older than 10 years. Before putting the money in any of these schemes, one should carefully compare both the schemes in detail for a better outcome. In all respects, it should be kept in mind that SSA account is necessitated to meet the specific needs of the girl child, whereas PPF account meets specific requirements along as well as long term needs including retirement plans.
The two schemes are comparable in many respects. Only one account can be opened both in SSA and PPF in one individual’s name. These accounts can be opened either in the post office or designated public sector banks. Both these accounts can be transferred anywhere in India in case the account holder shifts to a different place where the account is opened.
The maximum amount that can be deposited is 150,000 in both the schemes. In case there is any financial demand called for, partial withdrawal is possible up to the extent of fifty per cent. In SSA account, however, this withdrawal is possible only after the girl child has attained 18 years of age. Compared to this, partial withdrawal is relatively liberal in PPF account where the account holder can withdraw after seven years, irrespective of age.
The contributory amount, both in SSA and PPF, is also subject to benefit under section 80 (C) of income tax. The interest earned and the maturity amount is also tax free. Furthermore, in terms of maturity, the two accounts are comparable precisely. The PPF account matures in 15 years, excluding the year in which the first deposit is made, and can be extended to a block of five years, which is a total of in 21 years.
The SSA scheme too matures in 21 years. None the less, in case of death of account holder, the balance amount is credited to the guardian’s/ nominee account on production of the death certificate. The SSA is rather liberal than PPF account in case of pre-mature closure. The account may be closed prematurely on account of marriage, or if the Central Government is satisfied that the operation or continuation of the account is causing undue hardship to the account holder.
While putting forth the arguments accordingly, an important factor namely “timing of an investment” has largely been neglected. As far as returns are concerned, the returns are richer in SSA by 0.4 per cent in comparison to PPF. The humble looking 0.4 per cent yield to a substantial amount taking compounding in consideration. Assuming the rate of interest of 8.7 and 9.1 per cent in PPF and SSA respectively is maintained throughout the period, the investment of ` 150000 per annum in PPF, for 21 years, will yield 82.16 lakh at maturity. In contrast, the maturity amount in SSA will be ` 72.32 lakh.
The gained amount 9.84 lakh in PPF comes after paying 1.5 lakh for 7 more years than in PPF aggregating to 13.67 lakh. Clearly in the long run, SSA yields in much better return compared to PPF. It implies, if one has to invest for a little daughter, say around one to three years, one may conveniently think of preferring SSA over PPF.
At the time of maturity, the child shall reach the age between 21 to 24 years. This is the time when funds are required either for higher education or marriage. Since, after the 21 years since opening of the account, the entire amount is withdrawn, the funds are used befittingly. In case of early marriage, after attaining the age of 18 years, the entire amount can be withdrawn. The above mentioned benefits should be considered in favor of SSA if the option to choose is between SSA and PPF.
However, it may not be quite prudent to advise investing in SSA over PPF to everyone. Every investment, including these two options, is always individual specific, and should be undertaken according to one’s needs and circumstances. Assuming the scheme is opted when the age of the girl child is 10 years, the age of girl child shall reach 31 years, at the time of maturing the account.
By this time, at this age, the educational needs of the child will already be taken care of. Quite likely, the girl is married by this age. Even if SSA allowed 50 per cent of the withdrawal when the girl reaches 18 years of age, the half of the accumulated amount may not be sufficient to meet the predetermined goals. In addition to this, there is no provision to take loan which makes things worse. In this case, given the low liquidity of available funds, in SSA compared to PPF, the goals of investment may get priority, and therefore, PPF could become a better available option.
The PPF account is more beneficial over SSA in other respects as well. Presuming SSA account is preferred over PPF for the girl child. Assuming life takes a different turn and the girl does not go either for higher education or for marriage, in such a scenario, the account holder is not likely to require any substantial amount of funds either in between or after the maturity of account. The amount received on maturity of SSA will be wholly exempted from tax; however in subsequent years, the income accrued from this amount will attract taxation.
In contrast to this, in such a situation, PPF is certainly a better bet. The PPF account can be extended indefinitely for a block period of five years and if required, funds can also be withdrawn.
This way, one can continue to accumulate tax free returns apart from meeting the needs also.
It is made clear by the above argument that like any other investment, the available options too should be carefully evaluated. The best strategy may involve either opening both the PPF and SSA account in the name of the girl child. If circumstances allow, one may spread the investment between these two schemes.
