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As parents, securing the financial future of our children is a priority, and choosing the right investment scheme can play a pivotal role in achieving this goal. Two popular options available for parents in India are the NPS Vatsalya Scheme and the Sukanya Samriddhi Yojana (SSY). Both schemes are designed to provide financial security for children, but they come with distinct features and benefits. Here’s a detailed comparison to help you make an informed decision.
NPS Vatsalya: An overview
The National Pension System (NPS) is primarily known for providing retirement benefits to individuals, but it also offers a special child-focused scheme known as the NPS Vatsalya. This scheme is intended for parents looking to create a retirement corpus for their children. Here’s an in-depth look:
Key Features of NPS Vatsalya:
Investment:
The NPS Vatsalya scheme is based on a market-linked model, where investments are made in a combination of equity, government bonds, and corporate bonds.
There is a flexible investment option with both equity and debt components, which can be adjusted based on the investor’s risk profile.
Contributions can be made on a voluntary basis, with a minimum contribution of Rs 500.
Tax benefits:
Contributions to NPS Vatsalya are eligible for tax deductions under Section 80C of the Income Tax Act, subject to the overall limit of Rs 1.5 lakh per annum.
Additionally, there is an additional tax benefit under Section 80CCD(1B) up to Rs 50,000 over and above the Rs 1.5 lakh limit.
Return on investment:
As NPS Vatsalya is a market-linked scheme, the returns are subject to market fluctuations.
Historically, NPS has provided returns in the range of 8-10% annually, depending on the asset allocation and market performance.
Withdrawal:
Funds in the NPS Vatsalya account can be withdrawn after the child reaches the age of 18, either as a lump sum or in the form of an annuity, depending on the guardian’s choice.
NPS Vatsalya aims to build a long-term retirement corpus for the child, but partial withdrawals are permitted for specific needs such as higher education or marriage.
Flexibility:
NPS offers flexibility in terms of the investment portfolio, which can be managed based on risk tolerance. Parents have the liberty to choose between active or auto choice of funds.
Sukanya Samriddhi Yojana (SSY): An overview
The Sukanya Samriddhi Yojana (SSY), introduced by the Government of India as part of the Beti Bachao Beti Padhao initiative, is specifically designed for the welfare of the girl child. It is a savings scheme that offers a safe and guaranteed return, making it a popular choice for parents.
Key features of Sukanya Samriddhi Yojana:
Eligibility:
SSY can be opened for a girl child only, and the account can be opened by a parent or legal guardian.
The girl child should be under the age of 10 years at the time of opening the account.
Investment:
The SSY account requires a minimum annual contribution of Rs 250, with a maximum of Rs 1.5 lakh per year.
The account can be opened with any post office or authorized bank in India.
Tax Benefits:
SSY offers tax benefits under Section 80C of the Income Tax Act, with an exemption of up to Rs 1.5 lakh on the contributions made to the scheme.
The interest earned and the maturity amount are also completely tax-free.
Return on Investment:
Sukanya Samriddhi Yojana offers an attractive interest rate, which is fixed by the government every quarter. Currently, the rate stands at 7.6% (as of 2023), which is significantly higher than most traditional fixed deposit schemes.
The interest rate is compounded annually, further increasing the overall return on investment.
Withdrawal:
The SSY account matures when the girl reaches the age of 21 years. However, partial withdrawals of up to 50% of the balance are allowed when the girl turns 18 for higher education or marriage.
This makes SSY a reliable option for funding a daughter’s educational or marriage expenses.
Safety and Guarantee:
SSY is a government-backed scheme, making it a 100% safe investment with guaranteed returns, unlike NPS, which is market-linked and subject to market risks.
NPS Vatsalya vs Sukanya Samriddhi Yojana: A detailed comparison
The NPS Vatsalya and Sukanya Samriddhi Yojana (SSY) are two prominent savings schemes available for children’s future, but they differ significantly in various aspects. The NPS Vatsalya is open for children under 18 years, and it allows parents to invest in a market-linked scheme with equity and debt options, offering returns between 8-10% annually. Contributions can be as low as ₹500 per year, with no upper limit, and tax deductions are available under Sections 80C and 80CCD. It also allows partial withdrawals for education or marriage, with the ability to start withdrawing funds at 18 years. However, it is subject to market risks, making it more volatile.
On the other hand, the Sukanya Samriddhi Yojana is specifically for a girl child under 10 years and offers a fixed rate of return, currently at 7.6% per annum, which is guaranteed by the government. The scheme requires a minimum contribution of Rs 250 per year, with a maximum of Rs 1.5 lakh annually. Tax-free returns and principal are available under Section 80C. Partial withdrawals are allowed at 18 for education or marriage, and the scheme matures when the girl turns 21. Unlike NPS Vatsalya, SSY is a government-backed, safe investment with no market risks. Therefore, while both schemes offer significant benefits, NPS Vatsalya suits those seeking flexibility and potentially higher returns with a risk factor, while Sukanya Samriddhi Yojana is ideal for parents looking for a safe and fixed return option for their daughters.
Which one to choose for your child’s future?
When deciding between NPS Vatsalya and Sukanya Samriddhi Yojana, the choice depends on your financial goals and risk appetite.
Choose NPS Vatsalya if:
You are looking for a long-term investment for retirement purposes.
You are comfortable with market risks and seek potentially higher returns.
You are willing to manage the portfolio actively and are seeking flexibility in investment options.
Choose Sukanya Samriddhi Yojana if:
You want a safe, government-backed scheme for your daughter’s future.
You prefer guaranteed returns and tax-free benefits.
You are specifically saving for your daughter’s higher education or marriage.
Both schemes are excellent options for securing a child’s future, but the decision ultimately depends on whether you are looking for a higher return (with market risks) or a safe and fixed return investment. Consider your financial priorities, risk tolerance, and your child’s needs before making your decision.
