Sukanya Samriddhi Yojana scores over PPF scheme

The government has further sweetened the deal for those investing in Sukanya Samriddhi Yojana by increasing the interest rate from 9.1 per cent to 9.2 per cent.

This has made the scheme - which is for girl children only - even more attractive than PPF, which offers 8.7 per cent interest per year. On the tax front, though, both are on par, being the only two schemes that are not only eligible for income tax deduction under Section 80C but also give tax-free returns.

According to government officials, the new scheme will continue to get preferential treatment with regards to interest rates. "The government is offering preferential rates on this scheme and will continue be so," says A.K. Chauhan, Joint Director and HoD, National Savings Institute.

While PPF has a 15-year lock-in, the minimum lock-in in case of Sukanya Samriddhi Yojana is 11 years. But while PPF allows withdrawal (partial) after seven years, Sukanya Samriddhi Yojana allows partial withdrawal only after the girl turns 18. One can avail a loan against the PPF account. This facility is not there in Sukanya Samriddhi Yojana.

Though Sukanya Samriddhi has many good features, it cannot be an alternative to PPF, say experts. The reason is that only those with a girl child can open an account under the scheme.

"The scheme certainly offers good returns compared to PPF, but it cannot replace the latter simply because not everyone is eligible for it," says Vishal Dhawan, Founder and Chief Financial Planner, Plan Ahead Wealth Advisors. "This is a new scheme and we have to see if it manages to attract enough inflows. If not, it may not receive continuous focus of the government as does PPF."

What is Sukanya Samriddhi Yojana

For those who came in late, Sukanya Samriddhi Yojana is only for parents/legal guardians of girl children who are less than 10 years old. One can open Sukanya Samriddhi accounts only for two girl children. The account can be opened in post offices or scheduled commercial banks with a minimum investment of Rs 1,000 a year. Thereafter, one can invest any sum in multiples of Rs 100. One is allowed to invest a maximum of Rs 1.5 lakh a year irrespective of the number of accounts.

The money in the account can be fully withdrawn only after the girl turns 21. However, an account holder can withdraw up to 50 per cent amount at the end of the previous financial year for the purpose of the girl's higher education or marriage after she turns 18. If the money is not withdrawn even after the girl turns 21, it will continue to earn interest. In order to ensure that people from all strata of society benefit from the scheme, the government has allowed cash deposits.