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How Sukanya Samridhhi Yojana (SSY) and Public Provident Fund (PPF) can together take your daughter from college to PhD?

Posted on 03 Apr 2024
Author: Sayan Sircar

Tags: Children

16 mins read
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This article shows you how much corpus you can create via SSY and PPF for your daughter’s education from college to PhD.

How Sukanya Samridhhi Yojana (SSY) and Public Provident Fund (PPF) can together take your daughter from college to PhD?

📚 Topics covered:

What is the Sukanya Samriddhi Yojana (SSY)?
What is the public provident fund (PPF)?
How to use PPF and SSY together for a girl child’s complete higher education?
How are we managing the cash flows from the accounts?
What are the caveats of this analysis?
How to invest for education if you want to take a little more risk than PPF and SSY?

What is the Sukanya Samriddhi Yojana (SSY)?

Sukanya Samriddhi Account is a Government of India backed saving scheme targeted at the parents of girl children. The scheme encourages parents to build a fund for the future education of their female child. - Wikipedia

SSY is allowed only for girl children and has a ₹1.5 lakhs/year limit. It offers a deduction under 80C and has a 8.2% interest rate as of today. The amount is locked in until 21 years from account opening and allows partial withdrawal once the child is 18.

Just like PPF, the interest on SSY is calculated on the 10th of the month so you should invest as much as possible or need to by that date.

A new SSY account can be opened before the girl child is 10 years old. A maximum of two SSY accounts can be opened in a family. You can deposit a minimum of ₹1,000/year up to a maximum of ₹1.5 lakhs. Deposits are allowed only for 14 years from the date of opening the account.

50% of the balance in the account may be withdrawn once the girl child is 18 years old for higher education or marriage. The account matures 21 years after the opening date (and not when the child is 21).

The legal owner of the money in the SSY account is the girl child for whom the account was opened.

What is the public provident fund (PPF)?

As per Wikipedia, the Public Provident Fund (PPF) is a savings-cum-tax-saving instrument in India introduced by the National Savings Institute of the Ministry of Finance in 1968. PPF allows you to save small sums of money and offers a guaranteed interest rate and tax benefits that make it attractive for many conservative investors.

PPF is a fantastic debt instrument which has guaranteed return (though it has fallen over time) but it is still higher than the market rate in other options. Since there is a 15-year lock-in (which can be extended in blocks of 5 years) and to keep the account active you need only ₹500/year, open it and keep it active

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How to use PPF and SSY together for a girl child’s complete higher education?

Note:
Both SSY PPF are EEE-class instruments which means that they are exempt from tax on investment up to 1.5 lakhs/year under 80C, exempt from taxation during growth and there is a full exemption on taxes at maturity.

In this example, we will consider a girl child whose parents open both a PPF and SSY account when the child is 3 years old and start depositing ₹1.5lakhs/year (₹12,500/month) in each account. SSY investment continues for the next 14 years as per the rules.

The timeline and goals are as below:

Age of girl	PPF	SSY	Goal
1
2
3	Open	Open
…
17	Renew
18		50% withdrawal of SSY	UG
19			UG
20	60% withdrawal PPF		UG
21			UG
22	Renew
23		Matures
24			PG
25			PG
26
27	Renew
28
29	60% withdrawal PPF		PhD
30			PhD
31			PhD
32	Matures		PhD
33			House down-payment

Also read
First time home buyers: should you choose fixed, floating or overdraft type home loan?

How are we managing the cash flows from the accounts?

When planning for fixed goals via accounts like PPF and SSY with lock-ins, it is very important to be sure that money is available when needed.

For example, we need to keep in mind the following rules

SSY allows 50% withdrawal for higher education when the girl is 18
PPF can be extended after maturity for 5 years at a time
Partial withdrawals from PPF are allowed up to 60% of the balance at the beginning of the 5-year extension period

The money grows and gets spent like this (amounts are in ₹ lakhs/year):

Age	PPF	SSY	Goal	Investment	PPF balance	SSY balance	Corpus	Spending
3	Open	Open		₹ 3.0	₹ 1.5	₹ 1.5	₹ 3.0
4				₹ 3.0	₹ 3.2	₹ 3.2	₹ 6.4
5				₹ 3.0	₹ 5.0	₹ 5.0	₹ 10.0
6				₹ 3.0	₹ 6.9	₹ 7.0	₹ 13.8
7				₹ 3.0	₹ 8.9	₹ 9.1	₹ 18.0
8				₹ 3.0	₹ 11.2	₹ 11.3	₹ 22.5
9				₹ 3.0	₹ 13.5	₹ 13.8	₹ 27.3
10				₹ 3.0	₹ 16.1	₹ 16.4	₹ 32.5
11				₹ 3.0	₹ 18.8	₹ 19.3	₹ 38.1
12				₹ 3.0	₹ 21.8	₹ 22.4	₹ 44.2
13				₹ 3.0	₹ 24.9	₹ 25.7	₹ 50.6
14				₹ 3.0	₹ 28.3	₹ 29.3	₹ 57.6
15				₹ 3.0	₹ 32.0	₹ 33.2	₹ 65.1
16				₹ 3.0	₹ 35.9	₹ 37.3	₹ 73.2
17	Renew			₹ 1.5	₹ 40.0	₹ 40.3	₹ 80.3
18		50% withdrawal SSY	UG	₹ 1.5	₹ 44.5	₹ 43.4	₹ 88.0	₹ 43.4 (from SSY)
19			UG	₹ 1.5	₹ 49.4	₹ 46.9	₹ 96.2
20	60% withdrawal		UG	₹ 1.5	₹ 21.8	₹ 50.5	₹ 72.4	₹ 32.7 (from PPF)
21			UG	₹ 1.5	₹ 25.0	₹ 54.5	₹ 79.5
22	Renew			₹ 1.5	₹ 28.4	₹ 58.8	₹ 87.2
23		Matures		₹ 1.5	₹ 32.0	₹ 63.4	₹ 95.5
24			PG	₹ 1.5	₹ 35.9		₹ 35.9	₹ 63.4 (from SSY)
25			PG	₹ 1.5	₹ 40.1		₹ 40.1
26				₹ 1.5	₹ 44.6		₹ 44.6
27	Renew			₹ 1.5	₹ 49.4		₹ 49.4
28				₹ 1.5	₹ 54.6		₹ 54.6
29	60% withdrawal		PhD	₹ 1.5	₹ 24.1		₹ 24.1	₹ 36.1 (from PPF)
30			PhD	₹ 1.5	₹ 27.4		₹ 27.4
31			PhD	₹ 1.5	₹ 31.0		₹ 31.0
32	Matures		PhD	₹ 1.5	₹ 34.8		₹ 34.8
33			House	₹ 1.5	₹ 38.9		₹ 38.9	₹ 38.9 (from PPF)

What are the caveats of this analysis?

The picture painted here is extremely rosy with over ₹2 crore being spent over the years. However, the period involved is over 30 years and at this point, inflation cannot be ignored.

Age	Goal	Spending	Spending (8% Inflation adjusted)
18	UG	₹ 43.4	₹ 11.7
20	UG	₹ 32.7	₹ 7.6
24	PG	₹ 63.4	₹ 10.8
29	PhD	₹ 36.1	₹ 4.2
33	House	₹ 38.9	₹ 3.3
-	Total	₹ 214.6	₹ 37.6

If we apply a modest 8% inflation to these amounts the total amount, in today’s money is just above ₹37 lakhs. With these amounts, only government colleges can be used for education. Private colleges will be too expensive and the house down payment cannot be a practical goal.

How to invest for education if you want to take a little more risk than PPF and SSY?

PPF and SSY create a much lower corpus compared to mutual funds and that is the cost of choosing safety as we just showed. Here is an example of the performance of mutual funds.

PPF vs mutual funds for 15 years

We have already shown that PPF has not beaten risky assets like equity in less than 10% of cases since 1979: The latest result of PPF vs. SENSEX.

You can follow the complete goal-based investing process as explained:

Step 1: Identify your child’s goals

Your child’s school and other regular expenses will come from monthly income. But you need to plan for bigger expenses in advance:

Which of these are you saving for:

school admission
school trip to the US at age 14
UG-PG college degrees
house down payment after their first job
marriage

To understand how to create a child’s education plan:

Step 2: Insure yourself first

You need to ensure that an untimely death will not prevent your child from going to their future dream college. Term insurance is the right product here. Every earning member of the family must have adequate term insurance.

The whole family, i.e. child and parents should also have sufficient health insurance. This step prevents loss of income or a setback to investment goals due to illness.

Step 3: Make an investment plan to cover your child

Children’s education and other goals do not exist in isolation. They are a part of the comprehensive goal-based planning that parents need to do for their own retirement and everything else. The process is explained best with these examples:

There are more case studies here: Case Studies.

We have proven that the goal-based investing process works in most market conditions in this article: What is the best way to invest for your child’s college education?.

Step 4: Review the plan once a year

As time passes, things change:

stock markets go up and down creating or reducing portfolio value
income increases or decreases (sabbaticals, parents leaving the workforce to look at the kids, illnesses, parents re-entering the workforce)
the amount of money available increases (windfalls like inheritance or RSUs) or decreases (loss of income, death, medical emergencies)
college degree plans change as the kid grows up

Therefore the plan created in Step 3 has to be reviewed and rebalanced to check if you are still on track: Are your investments on track for your goals?.

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