Sukanya Samriddhi Yojana vs Mutual Fund: The CAGR a Fund Needs to Win

The usual advice for a girl child’s corpus is a one-liner: “equity always beats a government scheme over 21 years, so run an SIP.” It sounds obviously true. Nifty has done roughly 11-12 percent over long stretches, and Sukanya Samriddhi Yojana pays 8.2 percent. Case closed.

Except that 8.2 percent is tax-free and guaranteed, and your mutual fund is neither. Once you put both through the tax code and hold them for the same 21 years, the bar the fund actually has to clear is not “beat 8.2 percent.” It is higher than that, and where it lands depends on one thing most comparisons never mention: which tax regime you are in. Let me compute the exact break-even CAGR, to the rupee.

What SSY actually is, in numbers

Sukanya Samriddhi Yojana is a small-savings account for a girl under 10. The rules that matter for the math:

• You can deposit for 15 years from account opening. The account then keeps earning interest with no fresh deposits until it matures at 21 years.
• Maximum ₹1.5 lakh per year, minimum ₹250. Two accounts per family (one per daughter, up to two daughters).
• Interest is currently 8.2 percent, compounded annually, reset every quarter by the government.
• It is EEE: deposits qualify under Section 80C, the interest is tax-free, and the maturity payout is tax-free.

So the structure is 15 years of contributions, then a 6-year tail where the balance compounds untouched. That tail is where a lot of the growth happens, and it is easy to underestimate.

SSY maturity, worked to the rupee

Take the maxed-out case: ₹1.5 lakh deposited at the start of each year for 15 years, 8.2 percent compounded annually. Here is the balance building up through the deposit phase:

Year 1:  1,50,000 in -> 1,62,300
Year 5:  balance about  9,55,954
Year 10: balance about 23,73,618
Year 15: balance about 44,75,989   (last deposit made)

After year 15 you stop depositing. The ₹44.76 lakh then compounds at 8.2 percent for 6 more years:

44,75,989 x (1.082)^6 = 44,75,989 x 1.6048 = about 71,83,000

Maturity value: about ₹71.8 lakh, entirely tax-free. You put in ₹22.5 lakh (₹1.5 lakh x 15), so the tax-free gain is roughly ₹49.3 lakh. (If you deposit at the end of each year instead of the start, maturity drops to around ₹66-69 lakh. I use start-of-year deposits throughout; the conclusion does not change.)

That is the number the mutual fund has to beat.

The naive rule of thumb, and where it breaks

The mental model most people use is: “equity CAGR 12 percent, SSY 8.2 percent, equity wins by a mile.” The problem is it compares a pre-tax, market-linked number against a post-tax, guaranteed one. Three corrections flip the picture:

1. Tax. SSY maturity is tax-free. Equity fund gains above ₹1.25 lakh in a year are taxed at 12.5 percent LTCG. On a ₹49 lakh-plus gain, that tax is real money.
2. The 80C deduction. If you are in the old tax regime, every ₹1.5 lakh SSY deposit cuts your tax bill by ₹46,800 (31.2 percent slab). A regular large-cap or index fund gives you no such deduction.
3. Certainty. SSY delivers 8.2 percent no matter what markets do. The fund’s 21-year CAGR is a hope, not a promise, and the sequence of returns in the final years can swing your corpus by lakhs.

Corrections 1 and 2 pull in opposite directions on the fund. Let me do them separately, because the answer genuinely differs by tax regime.

Case A: the new regime (or comparing against ELSS)

If you are in the new tax regime, there is no 80C deduction for anyone, so SSY loses its tax-break edge. The same is true if you insist on comparing SSY against an ELSS fund, since ELSS also gets 80C and the two deductions cancel. In both cases it is a clean fight: SSY’s tax-free 8.2 percent versus the fund’s pre-tax CAGR taxed once at 12.5 percent on redemption.

Same schedule for the fund: ₹1.5 lakh a year for 15 years, held to year 21, then redeemed. LTCG is 12.5 percent on the gain above the ₹1.25 lakh annual exemption. Here is the fund’s post-tax maturity at various CAGRs against SSY’s ₹71.8 lakh:

The fund crosses SSY between 8 and 9 percent. Solving it exactly, the break-even is about 8.8 percent CAGR. That is barely above SSY’s own 8.2 percent headline, because a single LTCG hit at 12.5 percent, paid once at the end, is a light tax compared to how much equity compounds over 21 years.

So in the new regime, the bar is low. Any long-run equity return north of 9 percent beats SSY comfortably, and equity has historically done better than that. If you are on the new regime, this is the honest comparison, and it favours the fund.

Case B: the old regime, versus a regular equity fund

Now the case that trips people up. You are in the old regime, and you are comparing SSY against a plain large-cap or index fund (not ELSS). Here SSY’s 80C deduction is a genuine, exclusive advantage: each ₹1.5 lakh deposit hands you ₹46,800 back, and the regular fund gives you nothing.

The fair way to price this is to equalise the out-of-pocket cost. SSY costs you ₹1.5 lakh a year, but ₹46,800 comes straight back as a lower tax bill, so your net cost is ₹1,03,200 a year. For the same net outlay, the fund investor can put ₹1,03,200 a year into the fund. Now compare post-tax maturities:

The break-even here is just under 11.5 percent on strict annual-lump assumptions. Account for two things that work in the fund’s favour - monthly SIPs (each rupee compounds a little longer than an annual lump) and LTCG harvesting (redeeming gains up to ₹1.25 lakh tax-free each year to reset your cost basis) - and the bar drops to roughly 10.5 to 11 percent.

That is the number that matters for most parents in the old regime with a regular fund: your large-cap fund needs to compound at 10.5-11 percent for 21 years, after expenses, just to draw level with a government scheme. Every percent below that, SSY is ahead.

Is 10.5-11 percent an easy bar? Not as easy as it sounds

Nifty’s long-run total return is often quoted around 11-12 percent, so 10.5-11 percent looks clearable. Two problems.

First, that is the index’s gross return. A large-cap active fund charges 1 to 2 percent in expense ratio, and the median large-cap fund has struggled to beat the index after fees for years. A low-cost Nifty 50 index fund at 0.2 percent is your best shot, and even then you are counting on the next 21 years matching the last 21.

Second, and bigger: the quoted CAGR hides enormous dispersion. Twenty-one-year windows that end in a bad market year can print materially lower numbers, and the money in an SSY-style horizon is often needed on a fixed date (college admission, a wedding) with no flexibility to wait out a crash. SSY has zero sequence risk. The fund’s final value depends heavily on where the market sits in years 19, 20 and 21, exactly when the corpus is largest and a drawdown hurts most.

So the honest read is: 10.5-11 percent is achievable, historically even likely, but it is not a gimme, and you are taking real volatility to reach for the extra return.

Where each one actually wins

That last row is what I would actually do. SSY caps at ₹1.5 lakh a year anyway, so it can never be your whole plan for a 21-year goal. Use it as the guaranteed, tax-free floor - the part of the corpus you refuse to gamble - and route everything above ₹1.5 lakh, or your entire allocation if you are on the new regime, into a low-cost index fund.

One more caveat on the 80C point: SSY’s deduction only helps if you have spare 80C room. If your EPF, term insurance premium and home-loan principal already fill ₹1.5 lakh, SSY’s deposit earns you no extra deduction, and Case A (the ~8.8 percent bar) is your real comparison, not Case B.

Bottom line

• SSY at 8.2 percent, maxed at ₹1.5 lakh a year for 15 years, matures at about ₹71.8 lakh tax-free in year 21, on ₹22.5 lakh invested.
• New regime, or comparing to ELSS: a fund needs only about 8.8 percent CAGR to beat SSY after LTCG. Equity clears this easily, so favour the fund.
• Old regime, versus a regular large-cap or index fund: the break-even jumps to 10.5-11 percent, because SSY’s 80C deduction is worth ₹46,800 a year that the fund does not get. Most large-cap funds only just clear that bar, and not consistently.
• SSY has zero sequence risk; the fund’s outcome swings on the final three years. For money needed on a fixed date, that certainty is worth paying for.
• Practical split: use SSY as the guaranteed tax-free floor, and put everything above its ₹1.5 lakh cap into a low-cost index fund.

Figures here are illustrative and use representative rates current in mid-2026 (SSY 8.2 percent, equity LTCG 12.5 percent above ₹1.25 lakh, old-regime slab 31.2 percent). Actual SSY rates reset quarterly and fund returns are not guaranteed. This is not investment advice; verify current rates and your own tax situation before deciding.