There are four ways to effectively invest for your child’s future – NPS Vatsalya, the Public Provident Fund (PPF), the Sukanya Samriddhi Yojana (SSY) and a plain mutual fund. They may share many similarities on paper, but their differences become apparent when you actually need to access your money.
Here’s what the numbers say:
Let’s assume, a parent investing ₹3,000 every month for 15 years, resulting in a total contribution of ₹5.4 lakh.
However, the returns for both PPF and SSY will depend on government-notified interest rates.
NPS Vatsalya returns are based on an actual 15-year SIP in SBI Pension Fund. The calculation used the fund’s actual NAV performance from May 2011 to May 2026, with roughly 65% of the portfolio invested in equities.
For the aggressive hybrid mutual fund, let’s assume returns based on SIP performance of regular plans in this category for last 15 years, which works out to 12.12% annually.
First, the aggressive hybrid mutual fund generates the highest corpus of about ₹14.43 lakh, which becomes fully available to the child upon turning 18. This is roughly ₹4 lakh higher than the amount accessible under NPS Vatsalya and around ₹5 lakh more than what PPF delivers.
Other key factor to consider
While the mutual fund delivers the highest returns in this comparison, investors should also consider an important trade-off: the corpus remains accessible at all times. Without sufficient financial discipline, there may be a temptation to dip into these savings for reasons other than the original goal, such as a medical emergency, market-driven panic selling, or other unforeseen expense.
Abhishek Kumar, SEBI RIA, Founder- SahajMoney, “Liquidity and discipline rarely sit together. So although mutual fund could reward an investor who rarely touches it before the goal year but very few of us are that investor. So in such a case the lock in isn’t a limitation but becomes a tool to keep the goal intact.”
As we saw it in March 2020 when markets fell, redemptions and SIP stoppages spiked. That’s exactly the behaviour a child’s education fund needs to be insulated from.
PPF, SSY, and NPS Vatsalya have lock-ins that may seem limiting, but they play an important role by preventing premature withdrawals
“Products with a lock in might not earn the highest headline return, but they do ensure the money survives the next 15 years of temptation and market noise.”
How to plan for your child’s future?
- First set a goal: This can be done by calculating how much you need and accordingly how much you need to invest each month.
- The best option for investment is obviously aggressive hybrid mutual fund, but only if you can maintain financial discipline.
Here’s one approach you can follow:
“A better approach would be to pair a locked instrument like SSY or PPF with an aggressive hybrid fund the lock in keeps the goal money untouchable, while the fund adds equity growth and the liquidity to handle real emergencies,” experts suggested.
- For a daughter’s future needs, such as higher education or marriage, Sukanya Samriddhi Yojana can serve as the foundation, complemented by an aggressive hybrid mutual fund for growth.
- For a son’s higher education or early-career goals, PPF can play the same foundational role, alongside an aggressive hybrid fund to add equity exposure.
“That way one is not forced to withdraw from the long term corpus when life throws up a surprise,” Kumar concludes