SIP vs SSY: Start SIP in daughter's name or invest money in Sukanya Samriddhi Yojana? Know which may give better returns

SIP vs SSY: In an era when gender lines are blurring faster than ever, we want to provide the same level of education to our daughters as we want for our boys. At the same time, as responsible parents, we want to save money for our daughter's marriage. With the aim of providing money for a girl's education and marriage, Post Office runs Sukanya Samriddhi Yojana (SSY), which provides an interest rate of 8.2 per cent calculated and compounded yearly. The SSY scheme is a non-market-linked, guaranteed return scheme with an investment horizon of 15 years. However, it matures 21 years after the date of account opening. On the other hand, a lot of new-age parents are turning to systematic investment plan (SIP) investments in mutual funds.

The SIP investment is market-linked, with no assurance of guaranteed returns.

Yet many of the mutual fund schemes have given more than 30 per cent returns in the last one year.

Investors with risk appetites are investing in SIPs more than ever, as per January 2023 AMFI data.

Yet, when we think about the binary of a guaranteed return vs. a market-linked scheme, we often get confused.

At one end is the guaranteed income that can keep our investment secure.

On the other hand, in the market-linked scheme, returns are not assured, but they may give much higher returns than a guaranteed return scheme.

In this write-up, we will tell you how an investment of Rs 5,000 each every month in SSY and SIP may give you returns in 15 years.

Before going through calculations, let's understand the basics of SSY and SIP.

SIP vs SSY: What is Sukanya Samriddhi Yojana (SSY)?

The SSY scheme is a central government scheme focused on girl education and marriage.

A parent/guardian can open an SSY account in the name of a girl child under 10 years of age.

The scheme matures 21 years from the date of opening the SSY account, or at the time of the marriage of the girl child after she reaches 18 years of age.

The scheme provides an interest rate of 8.2 per cent per annum, calculated and compounded yearly.

One can invest a minimum of Rs 250 and a maximum of Rs 1.50 lakh in a financial year in the scheme.

While deposits up to a limit of Rs 1.50 lakh in a financial year qualify for deduction under Section 80C of the Income Tax Act, interest earned is completely tax free.  

SIP vs SSY: What is SIP?

A SIP is a daily, weekly, monthly, or quarterly investment amount that you can invest in a mutual fund.

Through SIPs, you purchase net asset value (NAV) in a mutual fund.

Since the NAV rates change every month, you end up purchasing NAVs in different amounts every cycle.

Such a practice helps an investor with rupee cost averaging.

SIP investment also motivates one to maintain financial discipline as they have to invest a certain amount every cycle.

Though many mutual funds have given over 30 per cent returns in the last one year, SIP investment doesn't guarantee a return.

It is market-linked, and one can also suffer losses in their SIP investment.

But SIP has become a popular way to invest in mutual funds since new-age investors have been fascinated by mutual fund returns in recent years.

Like SSY, the SIP investment also provides compounding. 

SIP vs SSY: Which may give you better returns?

We will take a monthly investment of Rs 5,000 and an investment horizon of 15 years.

While the interest rate of SSY is fixed at 8.2 per cent, we will assume that SIP would give a 12 per cent return since that may be considered the conservative estimate of SIP returns in the long run.    

SIP vs SSY: What Rs 5K investment in SSY will give you in SSY?

If you start investing Rs 5,000 a month in the SSY scheme, your total investment in 15 years will be Rs 9,00,000.

After this, parents will not have to invest in this scheme, but that amount will be kept locked.

The scheme will mature after 21 years. At the rate of 8.2 per cent return, you will get Rs 18,71,031 as interest, and Rs 27,71,031 will be your total returns.

SIP vs SSY: What Rs 5K investment in SIP may give you?

In 15 years, your SIP investment will be Rs 900000.

At a return rate of 12 per cent, your estimated long-term capital gains may be Rs 1622880, and the total returns may be Rs 2522880.

At this stage, SSY returns clearly surpass SIP returns.

However, you can continue investing in a SIP even after 15 years.

So, if you invest Rs 5,000 in a monthly SIP for one more year, you will invest Rs 9.60 lakh in total, but your capital gains are estimated to be Rs 1946891, while your estimated total returns may be Rs 2906891.

If you continue to invest for another five years, or a total of 21 years, then your total investment will be Rs 1260000, but your estimated long-term capital gains will be Rs 4,433,371, and the estimated total maturity amount will be Rs 5693371.

So after 21 years, with just a Rs 3.60 lakh investment, a SIP investment may give you Rs 5693371-Rs 27,71,031 = Rs 2922340 more.

(Disclaimer: The above-given calculations are estimates and actual returns may differ. Consult an expert or your consultant before making an investment.)