When planning their finances, individuals often seek avenues that provide both security and returns. Sukanya Samriddhi Yojana (SSY) and Fixed Deposits (FDs) are two popular investment options, each with its own set of features and advantages. Let's delve into the differences between these two instruments.
Purpose and Target Audience
Sukanya Samriddhi Yojana (SSY): SSY is a government-backed savings scheme specifically designed to meet the financial requirements of a girl child. It aims to promote the welfare and education of female children in India.
Fixed Deposits (FDs): FDs, on the other hand, are a generic investment tool suitable for a wide range of investors, including individuals, senior citizens, and minors. FDs cater to a broader audience with varying financial goals.
Eligibility Criteria
SSY can be opened for a girl child below the age of 10 by her parent or legal guardian. Only parents with female children are eligible to avail of this scheme.
FDs can be opened by individuals, joint account holders, and even minors with the help of a guardian.
Interest Rates
The interest rates for SSY are set by the government and are generally higher than FDs. The rates are subject to periodic revisions. Currently, the interest rate for SSY is set at 8.2 per cent.
FD interest rates are determined by the banks or financial institutions offering them. They can vary based on the tenure and the prevailing market conditions. At present the interest rate at public sector banks is in the range of 6.8-7 per cent for a one to five-year period.
Tenure And Lock-in Period
SSY has a long tenure, extending until the girl child reaches the age of 21. However, partial withdrawals are allowed after the child turns 18, facilitating educational or marriage-related expenses.
FDs offer flexibility in terms of tenure, ranging from a few days to several years. The investor can choose a tenure based on their financial goals and liquidity requirements. However, premature withdrawals may incur penalties.
Tax Benefits
SSY qualifies for tax benefits under Section 80C of the Income Tax Act. Both the principal amount and the interest earned are exempt from taxation. The interest earned on FDs is taxable, and investors need to pay taxes according to their income tax slab. However, tax-saving FDs with a lock-in period of five years are eligible for tax deductions under Section 80C.
Investors must align their decisions with their financial objectives and the specific needs of the intended beneficiaries. SSY is tailored for the welfare of girl children, providing higher interest rates and tax benefits. On the other hand, FDs offer versatility and cater to a broader demographic, allowing individuals to tailor their investments based on tenure, liquidity, and tax implications. Each option has its unique advantages, and the choice ultimately hinges on the investor's financial goals and preferences.
