Were you recently blessed with a baby girl or niece? You would have definitely thought about her future?
While doing that, did you come across the Sukanya Samriddhi Yojana scheme? Thinking whether or not to invest in it. Let us solve this dilemma for you.
Estimated read time: 3 minutes and 21 seconds
Buckle up, here we go!
What is Sukanya Samriddhi Yojana Scheme?
Launched in 2015, Sukanya Samriddhi Yojana (SSY) is a government-backed girl child savings scheme with a tenure of 21 years. The Government launched this scheme as a part of their Beti Bachao Beti Padhao campaign.
Only parents or legal guardians of a girl child can open the SSY account. Currently, the scheme offers an interest rate of 7.6% compounded annually.
We can open this account at any post office, Government or private bank. You cannot open it online.
How does the SSY scheme work?
Let’s say you opened an SSY account at the birth of your girl child.
For 15 years, you have to deposit a minimum amount of ₹250 and a maximum of ₹1.5 lakhs. This is mandatory. If you miss out on the deposit, the account will be deactivated. And to re-activate, you need to pay a penalty of ₹50 plus the minimum deposit amount of ₹250 for each year of default.
Initially, when the scheme was launched, deposits earned an interest of 9.1%. And currently, it earns an interest rate of 7.6%. Government announces the interest rate every quarter. You can check the history of this here.
At any point in time, this scheme will always offer an interest rate of 0.5% more than the Public Provident Fund (PPF) rate.
After 15 years, your deposits will still be in a lock-in period of 6 years. Any money deposited during this period will not earn any interest.
Eligibility criteria to open SSY account
Only parents or legal guardians of a girl child can open an SSY account. The girl child must be an Indian resident and below the age of 10 while opening the account.
You cannot open two accounts for a single girl child. And one family can open only two SSY accounts.
It is only possible to open three accounts with twins or triplets.
How can you withdraw your savings?
The account matures on completion of 21 years from the date of opening of the account.
But you can withdraw up to 50% (balance available at the end of the previous F.Y.) for higher education to meet education expenses. You can withdraw this after the girl attains the age of 18 and completed the 10th standard.
The account can also be prematurely closed in case of marriage of a girl child after she attains the age of 18 years.
Tax benefits on SSY
Sukanya Samriddhi Yojana comes under the EEE (exempt, exempt, exempt) category.
Deposits made towards this scheme are eligible for a tax deduction of up to ₹1.5 lakhs in a financial year under Section 80C. Remember, this is the same section which provides a deduction for investments in ELSS, PPF, EPF, insurance, etc.
Interest earned in this account is also exempt from tax under Section 10 of the Income Tax Act.
Therefore, you don’t have to pay any tax upon maturity/withdrawal.
Should you invest in Sukanya Samriddhi Yojana?
We should always take investment decisions based on our goals, risk appetite, financial situation, etc.
Obviously, your goal for this investment would be your child’s higher education and marriage. And 21 years is a very long time.
It is such a long time that even the risk of equity investments is reduced, and you can generate a return of 10-12% in the long term.
Because this scheme’s interest rate is only 7.6% and the fact that the Government can change its interest rate at any time. We wouldn’t recommend you invest in this scheme on a standalone basis.
The education inflation rate in India is around 6% and is expected to increase only. Fees of schools and top-tier colleges are rising by 10% every year. So you won’t be able to beat inflation and build a huge corpus for your child with SSY.
Since it is a long-term goal, we would suggest investing in a 100% equity fund for the initial 10-12 years. And as you move closer to the goal, start allocating funds to debt funds.
Also, if you are an aggressive investor. Considering a fixed-income fund to diversify your child’s portfolio, SSY is an excellent scheme.
And yes, if you are someone who might withdraw funds at the sight of a small, short-term unrealised loss, please invest in the SSY scheme. Because investing somewhere is better than not investing at all.
Share it with your buddies.
If you are like us, who likes to analyse a little more or check out content in different formats, well you are in luck. Below you can find some suitable content we found.
Note: We don’t have any affiliation with them. We are sharing links only for educational purposes. The opinions expressed by them belong solely to them and do not reflect the views of Vrid.