SIP vs Sukanya Samriddhi Yojana: Which can offer higher returns on Rs 80,000/year investment over 15 years?

When it comes to long-term savings and investments, two popular options are often considered: Systematic Investment Plans (SIP) and the Sukanya Samriddhi Yojana (SSY). While both are excellent vehicles for building wealth, they cater to different investment goals. If you plan to invest Rs 80,000 annually for 15 years, which one will offer higher returns? Let’s delve into a comparison of SIP vs SSY by examining their benefits, risks, and final maturity value.

What is SIP (Systematic Investment Plan)?

A Systematic Investment Plan (SIP) is a method of investing in mutual funds where a fixed amount is invested at regular intervals, typically monthly or quarterly. SIPs offer the advantage of rupee cost averaging, which helps mitigate market volatility and allows for compounding growth over time. This makes it a popular choice for investors looking to benefit from the long-term growth of the financial markets.

Also read: Top Small Cap vs Mid Cap Mutual Fund in 5 Years: Which has built higher corpus on Rs 10,000 monthly SIP investment?

How SIP Works: Understanding the investment process

In SIP, a predetermined amount is automatically deducted from the investor’s bank account and invested in a mutual fund. The fund’s Net Asset Value (NAV) determines the number of mutual fund units allocated. As the market fluctuates, your investment grows with the power of compounding.

This method reduces the need for market timing, as it spreads the investment over time, which averages out the purchase price of units.

SIP investment example: What are the expected returns?

Let’s take an example of an investment of Rs 80,000 per year in SIPs for 15 years:

If an investor contributes Rs 80,000 annually to an SIP for 15 years, this translates to a monthly investment of Rs 6,667, resulting in a total investment of Rs 12,00,060, which, assuming an average annual return of 12%, could grow to Rs 31,73,035, including estimated returns of Rs 19,72,975.

This example demonstrates the potential power of compounding through SIPs, although it’s important to note that returns are market-linked and subject to fluctuations.

Also read: SBI 10-year FD vs SIP: What will be your return on Rs 10,50,000 investment in 10 years?

When should you invest in SIP?

SIP investments can be started at any time, making it a flexible option. The earlier you start investing, the better the compounding benefits over the long term. It’s crucial to choose the right mutual fund for maximizing returns while keeping in mind the investment's risk level and time horizon.

What is Sukanya Samriddhi Yojana (SSY)?

The Sukanya Samriddhi Yojana (SSY) is a government-backed savings scheme specifically designed for the future of girl children. This scheme provides a fixed interest rate and offers tax-free returns, making it an attractive option for parents looking to secure their child’s future.

Key features of SSY:

• Eligibility: SSY can be opened by a parent or legal guardian for a girl child under the age of 10 years.
• Minimum Deposit: Rs 250 per year.
• Maximum Deposit: Rs 1,50,000 per year.
• Duration: The deposit period is 15 years, and the account matures after 21 years.
• Interest Rate: As of January 2024, SSY offers a fixed interest rate of 8.2%, which is subject to change by the government periodically.
• Tax-Free Returns: The scheme provides tax exemptions under Section 80C of the Income Tax Act.

SSY withdrawal & maturity conditions

• Partial Withdrawal: Up to 50% of the balance can be withdrawn when the girl turns 18 or completes Class 10, for purposes such as education.
• Full Maturity: The account matures after 21 years or at the time of the girl’s marriage (if she is 18 years or older).

SSY returns on Rs 80,000/year investment for 15 years

If you invest Rs 80,000 annually in the Sukanya Samriddhi Yojana, your investment scenario would look like this:

If an investor deposits Rs 80,000 annually in the Sukanya Samriddhi Yojana (SSY) for 15 years, the total investment would amount to Rs 12,00,000, and at an interest rate of 8.2%, the total interest earned would be Rs 24,94,708, leading to a maturity value of Rs 36,94,708.

The tax-free nature of SSY makes it an attractive option for long-term savings, particularly for parents seeking to provide financial security for their daughters.

SIP vs Sukanya Samriddhi Yojana 

Both SIP and SSY offer distinct benefits depending on your financial goals and risk tolerance.

SIP: Higher potential returns with risk

Flexibility: SIPs are ideal for investors looking for long-term growth and are willing to tolerate market fluctuations. They offer the potential for higher returns through market-linked investments.

Risk Factor: SIPs come with inherent risks due to market volatility, but over the long term, they tend to smooth out these fluctuations and offer significant returns due to compounding.

SSY: Stable returns with government backing

• Security: The Sukanya Samriddhi Yojana provides a stable, government-backed option with fixed interest rates. It is ideal for those who prioritize secure, risk-free investments.
• Tax Benefits: The tax-free returns make it a favorable choice for parents investing in their children’s future. However, it has restrictions on withdrawal, limiting flexibility.

SIP vs Sukanya Samriddhi Yojana 

• If your primary goal is higher returns with a long-term investment horizon and you are comfortable with taking on some level of risk, SIP could be the better choice. It allows you to capitalize on market growth and compounding over time.
• However, if you are specifically looking for a secure, government-backed savings plan with stable returns for a girl child’s future, then Sukanya Samriddhi Yojana would be a safer and more stable option.
• Ultimately, your choice depends on your financial goals, risk tolerance, and the level of flexibility you require in your investment. Both options offer significant benefits, so carefully consider your priorities before making a decision.