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Public Provident Fund vs Sukanya Samriddhi Account

Saving up for your child's higher education and marriage is an important task. You would like to ensure that your investment is safe and provides growth with stability. Schemes which come with a sovereign (Government) guarantee are considered the safest when it comes to investments.

This article will provide detailed information regarding two popular Government backed investment schemes, the PPF or Public Provident Fund and the SSA or Sukanya Samriddhi Account. You will get to know the tenure of these schemes, the interest rates offered by them, the tax benefits provided by them, lock-in period, provisions for extension of the scheme, withdrawal facilities, and so on. So, if you want to know which is a better option for your child's higher education, read on.

Difference Between PPF vs SSA

Before you decide to invest in either PPF or Sukanya Samriddhi Account, consider the key features of both to determine which one would be appropriate for your child.

FeaturesPPFSSA
Entry Age18 yearsBirth
Maximum Entry Age (Years)No upper limit 10
Minimum Deposit Limit (Rs)500250
Maximum Deposit per year1,50,0001,50,000
Withdrawal AgeAfter completion of 6 years from the date it was issuedCompletion of 18 years and solely for higher education purpose
Maturity Duration of Account15 years21 years
Mode of paymentCash, DD, cheque or onlineNot available
ExtensionNo limit (for a term of 5 years at a time)Not available
Nomination facilityAvailableNot available

One of the most important differences between the PPF and Sukanya Samriddhi Account would be that while a PPF account can be opened for both male as well as female child, the Sukanya Samriddhi Account can be opened only for the female child up to the age of 10 years.

PPF vs Sukanya Samriddhi Account Interest Rates

The interest rate offered by both- PPF and Sukanya Samriddhi Account is linked to the Government security or G-Sec yields. This rate is revised every quarter, and the current rate applicable from 01.07.2019 for Sukanya Samriddhi Account is 8.4% for the financial year 2019- 2020. Interest is compounded on an annual basis. On a month-to-month basis, the minimum balance in the Sukanya Samriddhi account between the 10th and the end of the month is taken into consideration for the calculation of interest. So, investments should be made before the 10th of every month. When it started on the 1st of April 2014, the interest rate was 9.10%.

The rate for PPF in the current quarter applicable from 01.07.2019 of the financial year 2019-2020 is 7.9%, which will be revised next quarter depending on the G-Sec yields. The lowest balance between the 5th to the last day of each month in your PPF account is used when the interest is calculated. So, ensure that you invest before the 5th of every month. The latest PPF or Sukanya Samriddhi Account interest rate can be found online.

PPF vs Sukanya Samriddhi Account Tax Benefits

Investments made in PPF qualify for the Exempt-Exempt-Exempt category. This means that investments made in this fund qualify for exemption under Section 80 C of the Income Tax Act. Also, the interest accrued in your account and the amount on maturity is exempt from tax is exempt from tax. You can invest up to a maximum of Rs. 1,50,000 per year. If you are in the 30% tax category, then you save taxes amounting to Rs. 45,000.

Like the PPF account, the Sukanya Samriddhi Account too falls under the Exempt-Exempt-Exempt category. The annual contributions to the account are exempted under the Section 80C of the Income Tax Act. The interest which is added to your account, as well as the final amount being withdrawn on maturity, are all exempted from tax. The maximum amount that can be invested is Rs. 1,50,000 per financial year.

FAQs on PPF vs SSA

Is SSA better than PPF?

When it comes to deciding which scheme is better, you need to understand the highlights of both schemes.

  • While you cannot open a PPF account independently for your child unless he or she is 18, you can open a PPF account in the name of a minor child. A revised account can be opened when the child attains majority, and the child can continue the account. You need to remember that the combined investment of both your independent account and that of your minor child or children cannot exceed Rs. 1.5 lakhs per year. You can open the minor account in the name of both a male as well as a female child.
  • In the case of Sukanya Samriddhi Account, it is opened in the name of the new-born girl child until she reaches the age of 10. You will get a maximum benefit of Rs. 1.5 lakhs under this scheme under Section 80C. This is applicable for only female children.
  • Maturity: The Sukanya Samriddhi Account matures 21 years from the date it was issued or when the girl gets married, whichever is earlier. With regard to PPF, your son or daughter can continue the PPF account by paying the minimum balance for as long as they like after they turn 18.
  • Tax Benefits: Both PPF and Sukanya Samriddhi Scheme come under the Exempt-Exempt-Exempt category, which means the amount deposited, the interest accrued and the maturity amount are all tax-free.
  • Interest Rate: The interest rate offered by Sukanya Samriddhi Account is 8.4% for the current quarter, while it is 7.9% for PPF. Both these rates are subject to be revised upwards or downwards in the next quarter.
  • Premature Withdrawal: Premature withdrawal can be made in case of the Sukanya Samriddhi Account up to 50% of the available balance by the account holder solely for higher education purposes. Partial withdrawal of up to 50% can be made on completion of 6 years of the account, and the funds can be used for any purpose. If you withdraw between 7 and 12 years, then the withdrawal amount permissible is higher.
  • Number of Accounts: Parents of the child holding the Sukanya Samriddhi Account can hold two or three accounts depending on if they have twins or triplets. For a PPF account, the parents can hold any number of accounts according to the number of children. The combined investment limit, however, would be Rs. 1.5 lakhs.
  • Loan against PPF: You can avail a loan against your PPF balance instead of going for a personal loan paying a higher rate of interest. This loan could be used for any requirement of your child.

Given the features of both schemes, PPF offers more flexibility compared to the Sukanya Samriddhi Scheme.

You can open a PPF account for a male or female child, but in the case of Sukanya Samriddhi Account, it is intended only for the female child only.

While the Sukanya Samriddhi Account is offering 0.5% higher interest rate compared to PPF, it does not offer a loan facility. Extension of the SSA is not allowed, whereas for PPF, there is no limit to the number of times it can be extended for a block of 5 years.

Premature withdrawal cannot be made in the case of SSA before the child attains 18 years of age, but there is no such restriction for PPF.

If there is a sudden requirement for funds, you can take a loan against PPF which can be repaid and does not disturb the interest earned in the PPF account.

Given all these advantages over SSA that PPF provides, it is a better investment option.

Is it possible to open both PPF and SSA simultaneously?

There is no law which prevents you from opening both a PPF and SSA account. So, yes, you can open both a PPF and SSA together. However, you need to determine if it is going to provide you with any extra benefit or not. Here are some factors you need to consider:

  • Limited Exemption: As far as tax exemptions are concerned, the overall limit per assessee under Section 80 C of the Income Tax Act is Rs. 1,50,000. By investing in both schemes, your tax limit will remain the same; there will be no additional benefit.
  • Tax Free Income: Opening both will mean you will have tax free income from two sources, though the total exemption limit remains the same. It would be advisable to invest in either PPF or SSA to claim the tax exemption under Section 80C and invest in some other product which gives higher returns over the long term depending on your risk appetite.
  • Loan Facility: PPF offers you a loan facility which could help you tide over a temporary funds crisis. This facility is not available for SSA.
  • Gender of the Child: You could spread the maximum investible limit over two children irrespective of their gender in case of PPF. In the case of SSA, it is limited to female children only.
  • Premature Withdrawal: While both SSA and PPF offer premature withdrawal facilities, PPF offers loan facilities and hence, you might not require any additional loan and disturb your account balance.

So, given the fact that both offer almost identical benefits and PPF offers some extra facilities, you could open a PPF account and invest any excess funds you have could be invested in some equity mutual fund which gives high returns over the long run.

Which is a Better Option When it comes to SSA vs. PPF?

Both SSA and PPF are excellent options to create a corpus for your child over the long run. However, when it comes to flexibility, PPF scores over Sukanya Samriddhi Account on certain grounds.

While Sukanya Samriddhi Account can be opened only for the girl child, PPF can be used for both male and female child.

You can open a PPF account in the name of your minor child and on maturity, the accumulated amount may be withdrawn, or you can continue the account till your child reaches adulthood. Then, the child can continue the account for as long as he or she likes. However, Sukanya Samriddhi Account cannot be extended.

When it comes to emergency funds, you can take a loan against your PPF account in the third year up to 25% of the balance in your PPF account. This ensures that your investment is intact and continues to earn interest. This facility is not available for SSA. As far as tax benefits are concerned, both schemes offer the same benefits. You can claim exemption up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act. The schemes come under the exempt-exempt-exempt category, which means that your contribution, accumulated interest, and the final amount withdrawn on maturity are all tax-free.

As far as interest rates are concerned, rates offered by SSA are slightly higher than that offered by PPF. Compounding of interest takes place on an annual basis for both schemes, though there is a slight difference in the dates considered for the minimum balance. In order to maximize your returns, it would be advisable to choose the PPF over SSA, given the additional facilities offered by it. Meanwhile, you can invest the excess funds in some other equity-based scheme, which offers attractive returns in the long term. When you combine your PPF investment along with a reliable equity mutual fund, you will be able to maximize the corpus you have created for the higher education costs of your children.

The power of compounding works best when you start early. So, if you are going to be a parent soon, don't wait and start your PPF account as soon as your child is born. Combine it with an equity mutual fund and have the required corpus when your child attains majority.

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