Vidyas Totare, Director Archers Wealth Management Private Limited
You can choose between Equity Linked Savings Scheme (ELSS) and Sukanya Samriddhi Yojana (SSY) depending on your risk appetite and financial requirement. Consider the features below to determine which option would be better for you.
Equity Linked Savings Scheme
The features of ELSS are:
1. You Rs. One can invest systematically over a period of 3 years with a minimum deposit of Rs. 500 per month.
2. Any long term capital gains or dividends earned from ELSS are tax-free up to Rs. 1 Lac.
3. Depending on your financial requirement you can invest in two types of investments namely Dividend Paying or Growth Funds.
4. The returns depend on the equity market for which you can enjoy substantial returns.
5. ELSS offers you a minimum lock-in period of 3 years.
6. It does not have a specified maturity date, and you can invest as long as required.
Sukanya Samriddhi Yojana
The scheme was launched to help the parents of a girl child save money for her education and marriage. The features of Pradhan Mantri Sukanya Samriddhi Yojana are:
1. The account can be opened for any girl child below the age of 10 years.
2. SSY accounts mature only after the primary account holder (girl) attains the age of 21 years.
3. Only one account per girl child and two accounts per family can be opened.
4. The minimum and maximum amount you can invest in Rs. 250 and Rs. 1.5 lakh per annum.
5. Primary account holders can opt for partial withdrawal up to 50% of the balance after attaining the age of 18 years.
Both ELSS and Pradhan Mantri Sukanya Samriddhi Yojana allow you to claim tax benefits of up to Rs. 1.5 lakh under section 80C of the Income Tax Act.
Abhinav Angirish, Founder, Investonline.in
A couple experiences a life-changing event when their child is born. Celebrations bring joy, but also great responsibility. The moment you become a parent, your child’s well-being becomes your top priority. Your goal as a parent should be to give your child the best possible start in life, and that includes providing them with a solid education.
Early savings are important to build a corpus for your child’s schooling. If you want to be sure that your savings will be sufficient to cover the cost of living 20 years from now, you need to choose an investment option that takes into account the ever-increasing rate of inflation.
Many debate about Equity Linked Savings Scheme (ELSS) Vs Sukanya Samriddhi Yojana (SSY). Both have different goals. Equity Linked Savings System is known as ELSS. Under Section 80C, it can be used to save money on taxes up to Rs 1.5 lakh. On the other hand, Sukanya Samriddhi Yojana is clearly for the benefit of girls’ education. To plan effectively, you must first consider your goals. They both are totally different. Under ELSS, there is a lock-in period of three years, whereas in SSY, you will receive a lump sum payment when your girl child turns 18 and is ready for education or marriage.
Sukanya Samriddhi Yojana is for 21 years. For example, if you start your plan when your child is 9, your money will mature when your daughters are 30, which is too late for the goal you have in mind. However, if you start this scheme at the age of one year, your savings will reach maturity at the age of 22, which is beneficial for girls.
On the other hand, historically, ELSS funds have given an average annual return of 15%. Overall, ELSS offers more liquidity as compared to traditional tax-saving products. Long Term Capital Gains (LTCG) from ELSS Mutual Funds will be taxed at 10% only if your total capital gain is higher in the financial year of withdrawal. 1 Lac. If your annual income is less than Rs 10 lakh, then you will not have to pay long term capital gains tax. 1 Lac.
The same SIP invested in equity mutual funds (for example) can be beneficial as its returns can be better than SSY. Furthermore, there is no lock-in period or penalty for premature redemption in case you change your mind about your investment strategy or a crisis arises. Start a Systematic Investment Plan (SIP) in an Equity Linked Savings Scheme (ELSS), which has comparable tax benefits similar to SSY, but requires a lock-in period of 3 years.
Manas Chugh, Chartered Accountant
Equity Linked Savings Scheme (ELSS) is a tax saving scheme, under which the amount is invested in market linked funds with a lock in period of 3 years. Since the invested amount is allocated to equity or equity-linked securities, it can potentially generate higher returns than fixed income securities. Since the exposure of the allocated assets is to the market, the risk of the investment is assumed to be high. There is no limit on the investment amount.
Sukanya Samriddhi Yojana (SSY) is a government-sponsored investment scheme for girl children with a maximum age of 10 years. The account is opened in the name of the parent/guardian, in which a maximum investment of 1.5 lakh can be made. SSY offers a fixed interest rate which currently stands at 7.60% per annum. This interest rate is reviewed quarterly. The lock in period for SSY is 15 years but matures after attaining the age of 21 years. Tax benefit is also available under section 80C. The returns offered are better than other fixed income securities.
Hence, from the past return on investment, ELSS generally provides better return on investment but with higher risk. Also, the lock-in period under ELSS is only 3 years while it is 15 years in case of SSY. Taxation benefits under section 80C are available in both the schemes. For someone with a risk appetite, one should invest in ELSS as it offers higher level of returns and more flexibility on lock in and investment amount.
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