NPS Vatsalya Vs MFs Vs SSY: The best investment option for you depends on your financial goals, risk taking capacity and your daughter’s age.
NPS Vatsalya Vs MFs Vs SSY: When it comes to investing for a better future of your daughter, many options are visible. But it is not understood which option is better for investment – Sukanya Samriddhi Yojana (SSY), National Pension System Vatsalya (NPS Vatsalya) or Mutual Fund. Each of these investments has its own benefits. While SSY is a government scheme that offers guaranteed returns with tax benefits, NPS Vatsalya (National Pension System Vatsalya) offers equity and debt exposure for long term growth.
Talking about mutual funds, they provide flexibility and professional management but market risk is also associated with them. In such a situation, the best investment option for you depends on your financial goals, risk taking capacity and your daughter’s age.
Sukanya Samriddhi Yojana, NPS Vatsalya or Mutual Fund, which is the best?
Looking at these investment options, Sukanya Samriddhi Yojana (SSY) seems to be the safest option with guaranteed returns. This scheme also offers the advantage of EEE tax regime (exempt-exempt-exempt). The income received on maturity is completely tax-free. The maturity period of this scheme is 21 years. After this, you will need to reinvest this income in other investment instruments on which you may not necessarily get tax benefits. Apart from this, its returns are lower than other options like NPS Vatsalya or Mutual Fund which involve some level of risk.
Sukanya Samriddhi Yojana (SSY)
The aim of this scheme is to promote financial security and empowerment of parents by encouraging them to save for the future education and marriage expenses of their daughter. Under this, parents or guardians can open an account for a girl of 10 years or less. The minimum deposit amount is Rs 250 per year, and the maximum is Rs 1.5 lakh per year. The current interest rate of Sukanya Samriddhi Yojana is 8.2% per annum. The scheme matures after 21 years from the date of opening the account, but deposits have to be made only for the first 15 years.
Both NPS Vatsalya and mutual funds have investment risk, but the level of risk can be managed through asset allocation of the investor’s choice, i.e. it can be reduced. Experts say that when long term investments have to be made, investors can choose to invest in risky assets like equity to get higher returns. At the same time, a hybrid approach is mandatory in NPS, which may give lower returns than an aggressive mutual fund portfolio, but hence the risk is also reduced.
NPS Vatsalya
The scheme aims to promote the financial security of children by enabling parents or guardians to save for their children’s retirement. Parents or guardians can open accounts for their minor children (below 18 years). This includes Indian citizens, NRIs (Non-Resident Indian) and OCIs (Overseas Citizen of India). The minimum deposit amount is Rs 1,000. There is no upper limit on the amount to be deposited.
Once the child turns 18, the NPS Vatsalya account automatically converts to a regular NPS Tier I account, which the child can manage independently. The default asset allocation for the NPS Vatsalya scheme is Moderate Life Cycle Fund (LC-50), which invests 50% in equity.
Experts say, “For many families, planning for children’s education, marriage and their own retirement comes before raising a pension for the children. As a result, investing in NPS Vatsalya Yojana may not be a right option for such people. It would be more sensible for these people to invest in children’s plans offered by mutual funds, which provide better flexibility.
Unlike NPS Vatsalya, mutual funds offer full liquidity and flexibility. In NPS Vatsalya, after the child turns 18, only 20% of the corpus can be withdrawn as a lump sum, the remaining amount is transferred to an annuity plan. On reaching the age of 60, 60% of the NPS corpus is available as a tax-free lump sum. While the remaining 40% is invested in annuity plan. Therefore, NPS Vatsalya can be an attractive investment plan for those who want to do financial planning for their child’s future.”
Also Read- Post Office MIS: You can earn ₹9,250 every month from Post Office MIS for 5 years, but if you want to continue earning further, what is the way?
Mutual Fund’s Children Fund (MF- Children’s fund)
By investing in equity and debt instruments, you can get better returns in the long term.. Usually, these funds adopt a balanced approach by investing about 60-70% in equity and the rest in debt and money market instruments. The purpose of this allocation is to provide balanced growth with risk management. Many children’s funds come with a lock-in period until the child reaches a certain age. Considering all these factors, experts believe that investors should adopt a balanced approach for long term investment.
Related Articles:-
NPS Benefits & Pension Calculation: How to get ₹50,000 monthly pension? check calculation & benefits
RD vs SIP: Where to invest RD or SIP? understand the profit and loss
