Public Provident Fund vs Sukanya Samriddhi Account

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.

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.

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.