Parents looking to build a financial cushion for their children have multiple government-backed options to choose from, including NPS Vatsalya and the Sukanya Samriddhi Yojana (SSY). Both schemes are designed to promote long-term savings, but they differ in structure, eligibility, returns and tax treatment.
is a fixed-income savings scheme limited to girl children. It offers an interest rate of 8.2% per annum and can be opened for any female child until she turns 10. The scheme offers to provide financial security to a girl child and comes with tax benefits.
NPS Vatsalya, on the other hand, is a market-linked pension scheme for minors that invests in a mix of equity and debt instruments, with returns depending on market performance. One can invest up to 75% of their contributions in equity, with the remaining 25% allocated to corporate bonds and government securities. The account then converts to a standard NPS account upon the child attaining 18 years of age.
Tax benefits
SSY offers “EEE” (exempt-exempt-exempt) tax benefits: contributions of up to ₹1.5 lakh per year are deductible under Section 80C, the interest earned is tax-free, and the maturity or withdrawal proceeds are entirely tax-exempt. This government-backed scheme, typically used for a daughter’s education or marriage, provides tax-free growth over 21 years.
Meanwhile, offers tax benefits under Section 80CCD(1B) of the Income Tax Act, 1961, allowing parents to claim an additional deduction of up to ₹50,000 over the ₹1.5 lakh limit. Partial withdrawals of up to 25% of contributions are tax-exempt, while up to 60% of the corpus can be withdrawn tax-free at exit, with the remaining used to buy an annuity. In case of a minor’s death, the amount received by the parent, guardian or nominee is not treated as taxable income.
Lock-in and withdrawal rules
NPS Vatsalya offers a 3-year lock-in period, after which partial withdrawals of up to 25% are allowed (excluding returns). These withdrawals can be made only twice until the child turns 18. Between the ages of 18 and 21, two additional withdrawals are allowed. Once the child reaches 18, the account can either continue for another three years or be shifted to a regular NPS account or be exited. On exit, if your total accumulated corpus is less than ₹8 lakh, then full withdrawal is permitted. However, if the total accumulated corpus is more than ₹8 lakh, then you can withdraw up to 80% of the corpus as a lump sum and at least 20% as annuity.
In contrast, the SSY has a much stricter lock-in. The scheme runs for 21 years from account opening, and full withdrawals are allowed only at maturity. Partial withdrawals are permitted only after the girl turns 18 or passes Class 10, and are capped at 50% of the balance, primarily for education or marriage-related expenses. Premature closure is tightly restricted and allowed only under specific conditions, such as the death of the account holder or extreme financial hardship.
Investment and growth potential
SSY offers returns at 8.2% per annum (compounded annually) for FY2026-27, with rates reviewed quarterly. The minimum investment in this scheme is ₹250 per year, with a maximum ceiling of ₹1.5 lakh per year. For example, if you invest ₹1.5 lakh every year for 15 years, your total contribution comes to ₹22.5 lakh. The total interest, however, will be earned over a full 21-year period. Assuming the interest rate remains constant at 8.2% throughout, the total interest earned over the 21 years will be ₹49,32,119. Thus, the total amount on maturity will be ₹71,82,119.
Meanwhile, the investment structure and returns in NPS Vatsalya are , meaning there is no fixed interest rate. Contributions are invested across equity, corporate debt and government securities, with returns depending on asset allocation and market performance.
What are the eligibility criteria for each scheme?
The SSY is meant to meet the education and marriage expenses of a girl child. The SSY account may be opened at any time from the girl child’s birth until she attains the age of 10 years. However, it’s important to note that only one SSY account is permitted per girl child, and a family can open accounts for a maximum of two girl children. More than two accounts are allowed for twins or triplets, subject to the submission of an affidavit along with the relevant birth certificates.
NPS Vatsalya is open to all minors (below 18 years of age), with the account opened in the child’s name and operated by a parent or legal guardian. The minor is the sole beneficiary, while the guardian manages contributions and decisions until the child turns 18. The scheme is available to Indian citizens, NRIs and OCIs, provided they meet the age threshold.