Sukanya Samriddhi Yojana – Should You Invest in It?

Education is amongst the most important financial goal for any parent. Amidst all the various investment options available to you, one attractive option is the Sukanya Samriddhi Yojana. Today let us explore the features of this scheme and find out whether you should invest in this scheme or not.

• Launched by the Government in 2014, its objective is to help parents of girls to accumulate a decent corpus for their education and marriage.
• The account can only be opened by Indian residents for their Indian resident daughter(s).
• The age of the girl child should be below 10 years at the time of opening the account.
• You can open only one account per girl child and a maximum of two accounts for two girl children. There are certain relaxations given for twins and triplet children.
• The minimum initial deposit amount is INR 250. The total amount deposited in a year is INR 1.5 lacs per account.
• The account can be opened in a Government-authorized bank or a post office.
• The present Interest rate (2021) is 7.6%. However, note that the Government notifies new rates every quarter, and hence the interest rates are subject to change.
• You can get a tax benefit under Section 80C for your investment in the scheme. The interest that you earn in the account every year and the maturity proceeds are entirely tax-free.
• There is no risk of loss of money as it is a Government-backed scheme.
• The scheme matures on completion of 21 years from the date of opening the account or on the marriage of the girl child, whichever is earlier.
• You can make a deposit in the account only for 15 years. After that, the account continues to earn interest as per the rates prevailing at that time.
• You can withdraw up to 50% of the money from the account for higher education purposes or the actual fee charged by the educational institution, whichever is lower once the child attains the age of 18 years. You will need to submit some documentary proof of fee demand to claim the withdrawal.
• You can also withdraw money and close the account in case of your daughter’ marriage. In that case, you need to file an affidavit that the child is above 18 years of age.

• Zero risk investment
• Tax benefit on the amount invested and annual income from the account
• Slightly higher interest rate as compared to PPF (at present – the year 2021)
• A forced saving avenue for daughter’s education (like NPS for retirement) – you cannot withdraw the money for other purposes
• Forced lock-in helps you to reap the power of compounding

• The very long tenure of 21 years – higher than even PPF (15 years)
• Very high lock-in period (till the child attains 18 years of age)
• You can only open the account till your daughter reaches 10 years of age. Once your daughter completes 10 years of age, you cannot open the account for her.
• The restriction on the daughter’s age (min. 18 years) and the amount (max. 50% of corpus) on withdrawal of money for higher education purposes is a dampener
• You don’t have the flexibility to use the money for any other purpose other than girls’ education.
• Withdrawal for higher education is restricted to the actual fee paid. This does not consider other out-of-pocket expenses, which constitute a big chunk of the total education expense.
• The return from this scheme does not beat the prevailing education inflation in India, which is > 12% in some cases.

On the face of it, Sukanya Samriddhi Yojana is a good scheme as it gives decent risk-free and tax-free returns.

However, its main drawback is the rigid withdrawal rules in the scheme. Empowering a daughter through proper education is much more important than marriage. In the present scenario, the money requirements for education arise much before a child completes 18 years of age.

This can be a good scheme for you if you are an utterly risk-averse investor and don’t want to take a risk with your money. Take care to invest the right amount every year to accumulate the desired corpus. Do also check out PPF, as it can prove a much better option from a liquidity point of view.

However, you may be an investor who understands the long-term benefit of investing in equity and can digest the volatility that comes with investing in this asset class. In that case, you can consider investing in a mix of equity and fixed income in a pre-set allocation as follows:

• Equity portion: You can invest via direct equity or equity mutual funds.
• Fixed Income portion: You can invest via a combination of debt mutual funds/ fixed deposits and the Sukanya Samriddhi scheme.

This will help in the following ways:

• Equity will help in earning a much better return than fixed income options and help offset the impact of education inflation. Investment in ELSS scheme(s) can help you get a tax deduction u/s 80C.
• By investing in Sukanya Samriddhi Yojana, you get two benefits. First, the tax advantage on your investment under Section 80C. Second, the income from your investment is completely tax-free and without any risk.
• Debt mutual funds or fixed deposits can help you build a liquid portfolio. This portfolio can help you meet the money requirements that arise during the lock-in period of Sukanya Samriddhi Yojana.

Sukanya Samriddhi Yojana is a decent option to consider for dedicatedly planning your girl child’s education. However, it can work better if combined with other options like equity and debt mutual funds. Do take care of the rules on withdrawal from this scheme and keep some surplus funds to meet the money requirements as they arise.