Sukanya Samriddhi Yojana: Worthy Investment Option For Your Daughter?

Mar 5, 2019

Every parent wants the best for their children. So when a daughter is born, considering the current inflation trajectory, smart millennials start saving and investing for her future (education & marriage) in a variety of investment instruments.

Mutual funds, Bank Fixed Deposits, and several tax saving instruments like PPF or NSC are popular options. But not all of these are best suited for everyone. If you are a risk-averse investor (conservative) looking for assured returns, ideally stay away from the ones providing market-linked or variable returns.

The Sukanya Samriddhi Yojana (SSY), a Government of India backed scheme, is a worthwhile option specifically if you are looking to plan for your daughter's future needs.

About SSY and its features

Sukanya Samriddhi Scheme was launched in January 2015 to promote the 'Beti Bachao Beti Padhao', campaign to eradicate the discrimination against the girl child. This scheme allows a parent to open an account for their girl child.

Salient features:

• Account opening eligibility:
  
  

  A parent/legal guardian can open a SSY account at any time from the date of birth and till the girl child completes 10 years of age. You can visit the nearest post office or an authorized public sector bank branch to open this account under your daughter's name. However, the government is giving a grace period of one year, which makes children born between December 02, 2003 and December 01, 2004 also eligible for these accounts.

• Minimum amount required:
  
  

  While the minimum investment amount is Rs 1,000 and further in multiples of Rs 100 thereafter, either you deposit a lump sum amount annually or make 'n' number of deposits is allowed after the first year.

  In one financial year, you can invest a maximum amount of Rs 1,50,000. If in every financial year a minimum deposit of Rs 1,000 to SSY account is not made the account will get inactive and a penalty will be charged to revive it.

• Interest Earned:
  
  

  Interest earned on the investment made in this scheme is compounded annually at 8.5% (w.e.f. 1-1-2019).

• Taxation:
  
  

  Deposits made up to Rs 1,50,000 in a financial year enjoys a favourable, i.e. Exempt-Exempt-Exempt (E-E-E) tax status. It allows a standard deduction under Section 80C of the Income Tax Act, 1961. Plus, the interest earned from this scheme will be exempt from tax as well.

• Maturity time period:
  
  

  This account will mature when the girl child completes 21 years of age. Remember that, it is not necessary to close the account on its maturity. One may allow the account to earn interest even after maturity by not closing it.

  However, do note that if the girl child gets married before the completion of 21 years of age, at 18 years then the operation of the account shall not be permitted. Normal premature closure will be allowed only after completion of 18 years and provided she is married.

• Withdrawal limits:
  
  

  Partial withdrawal of up to 50% of the balance in the account at the end of the preceding financial year is allowed after girl child attains 18 years. Provided that such withdrawal shall not be allowed unless the account holder attains the age of eighteen years. The account can be closed after the completion of 21 years. Normal Premature closure will be allowed after completion of 18 years provided that girl is married.

• Number of accounts available:
  
  

  Either of the parents can open one account under one daughter's name, and a maximum of two accounts in the name of two different girl children can be opened separately. Plus, to open an account one must follow KYC norms.

  It would be wise to say that investing in SSY can be beneficial over a longer time period to secure your daughter's expenses. Let's look at the given illustration to understand better.

  If your daughter's age is five years now and you invest Rs 12000 per month till she turns 21 years old. The number of years for maturity is 16 years (21- daughter's present age (5years))

  Number of years	Amount (in Rs)
  4 years	688,017
  8 years	1,653,487
  12 years	3,008,298
  16 year (year of maturity)	4,909,455

  (Illustration purpose only)
  (Rate of interest assumed at 8.5% per annum)
  

  It is seen that the amount invested is compounded annually at 8.5% per annum and till the time your daughter attains 21 years of age, you accumulate a corpus of Rs 4,909,455 which can be used for further studies or for wedding expenses. Besides, the amount invested, and the amount received is exempt from tax under Section 80C.

To conclude:

PersonalFN is of the view that the Sukanya Samriddhi Scheme is a good investment option. However, along with SSS, you must also invest in other investment instruments depending upon your risk appetite and time horizon.

Remember, simply investing every month will not safeguard your child's future. Child's education and marriage are some of the most important financial goals in the life of parents. Thus, it is necessary that you start planning for this as early as possible. Although you might think that your child is too young and there is ample time left for planning for her future, let us apprise you that there is no "right" age to begin planning.

On that note, we wish your little girl a very bright future.

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Author: Aditi Murkute

This article first appeared on PersonalFN here.

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