Is SSY the Right Choice for Your Child’s Future?

Every parent dreams of giving their child the best education possible, but with education costs rising at 10-12% annually, saving enough can be a challenge. In fact, some degrees that cost ₹5-6 lakh today could hit ₹20-22 lakh in just 15 years. Let us have a look at—

Projected Higher Education Costs in India

The difference in the costs could be huge over the years. So, what can you do about it?

Well, the government has an option for you:

Sukanya Samridhi Yojna

It is a government-backed scheme that offers a safe and tax-efficient way to secure the financial future of a girl child by creating a corpus for her education & marriage.

Let’s understand the features of SSY scheme in the table below:

SSY clearly beats FDs and small savings schemes in returns. Is that enough?

But what about Market Linked Investments?

For long-term goals like education, comparing fixed returns with market linked returns, still makes sense. Since the risk of loss drops significantly as the investment time period increases.

Here’s how the risk of loss in NIFTY 50 decreases as the time period increases:

With rising education costs, its long-term potential to beat inflation makes market linked investments a compelling choice.

Let’s understand with an example:

Ramesh earns ₹25 LPA and wants to invest for his daughter’s education. He thought of comparing an Index ETF with SSY.

Here’s how both the options would play out:

Note: Since SSY investment stops at 15 Years, but it’s locked-in and grows till 21 years, we have applied the same to SIP to have a precise comparison.

Even after the tax benefits the profit from SSY is way less as compared to investment in Nifty BeES.

Conclusion

SSY offers tax benefits and fixed returns, but the lock-in period is huge and the returns still might not be able to beat the education inflation. 

However, though SSY cannot be solely relied upon to plan for education, it could be a great option for parents to diversify their investments, since the returns are better than FD.

On the other hand, SIP involves some market risk, but if you’re okay with that, it can help you build a significant corpus to take care of your children's education entirely.

So if you’re a parent of a boy child, don’t feel left out! 

While SSY is only for girls, investing in safe market linked investments like Index Funds are open to all. So, you still have a more powerful tool to build an education corpus for your son.The only thing you might be missing on is—a great alternative for long-term fixed investments.