Navigating the maze that is personal finance

Friday, 23 December 2016

Sukanya Samridihhi Account or Public Provident Fund. Which one is better?

Both Sukanya Samriddhi Yojana (SSY) and Public Provident Fund (PPF) are saving instruments that provide deductions under section 80C of the Income Tax Act. But like other investors you might have the question – Should I invest in SSY or PPF?

The first thing that you need to keep in mind is that the purpose of the two schemes is completely different.  The main aim of SSY is to ensure a bright future for girl children by facilitating education and marriage expenses while PPF is a scheme to encourage savings and create a retirement corpus.

Once you are clear about your purpose you can consider the following criteria in order to make a more informed decision.

Criteria Sukanya Samriddhi Yojana (SSY) or Sukanya Samriddhi Account (SSA) Public Provident Fund (PPF)

Deposits under this scheme are to be made for the first 15 years from account opening date.

After 15 years no deposit will be made however the account will accumulate interest for the next 6 years and matures on completion of 21 years.
15 years; after maturity you can renew your account indefinitely for periods of 5 years at a time.

Interest rate. The interest rate is revised by the government every 3 months.

8.5% compounded annually

8.0% compounded annually

Who can enroll?
A SSY account can be opened for a girl aged 10 years or less.

Non Resident Indians (NRIs) are not eligible for opening a SSY account for their daughters. Detailed information about eligibility of OCI & PIO individuals can be found here.
Any Indian citizen older than 18 years of age can open a PPF account. Parents can open PPF on behalf of their children, however the total deposit jointly cannot exceed Rs.1.5 lakh in their own and their child's account.

A Non Resident Indian (NRI) cannot open a fresh PPF account but if they have acquired NRI status after opening the account, then they can continue to operate it but the tenure cannot be extended after maturation.

Minimum 1000/- and then multiples of 100 up to 1.5 lakh in a financial year can be deposited under the scheme.

If minimum deposit is not done in a year the account will be deemed default on payment, in such case account can be revived by paying Rs. 50/- and depositing minimum balance.

Only one account for each girl child can be opened; up to two such accounts can be opened by parents for two girls unless the second birth results in twin girls in which case a third
account can be opened by a parent.
A fee of Rs. 100 is charged to open a PPF account.

A minimum of Rs. 500 has to be deposited in a fiscal to keep the,account active; a maximum of Rs. 1.5 lakh is allowed in a financial year.

Deposits can be made in one lump sum or in 12 installments.

50% withdrawal is allowed on child passing 10th or attaining 18 years of age, whichever is earlier for purpose of higher study on production of fee slips or admission letter.

Certain cases may be allowed to withdraw prematurely on compassionate grounds such as illness etc. with proper documentation and reasons in writing.

Partial withdrawals can be made from the start of the 7th financial year after the account has been created. You can withdraw once every financial year subject to the following rules:

The amount that can be withdrawn is equal to the lower of:

50% of the account balance at the end of the year immediately preceding the current year, or, (if your account balance is Rs. 2 lakhs at the end of FY 2016, you can withdraw Rs. 1 lakh in FY 2017).
50% of the account balance as at the end of the 4th year, immediately preceding the current year.

You will be allowed to close an account prematurely after completion of five years of the account opening under the following conditions:

For treatment of life threatening diseases of the account holder, spouse or dependent children. You will have to produce documents to support this claim. For higher education. You will have to produce fee bills in confirmation of admission.

You cannot extend the tenure of your account after completion of 21 years. You can keep extending the tenure for a period of 5 years at a time. You may decide to contribute or simply earn the tax free interest during the 5 year extension period. One thing to keep in mind is that if you have decided not to contribute during the 5 year extension period, you cannot contribute in the next 5 year extension block.

Ease of contribution
You need to go to the bank in order to deposit money in your SSY account. You can easily make contributions to your PPF account online.



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