Our noted Prime Minister, Narendra Modi had recently talked about the “Beti Bachao, Beti Padhao” when he launched the Sukanya Samriddhi Yojana, which was eligible for exemption under 80C. In the recent budget speech, the Finance Minster proposed to make the interest component as well as the maturity proceeds as tax-free.
To think of it, this scheme has now become the best small savings scheme available to investors who are otherwise conservative while investing. But is this scheme even better than our good old Public Provident Fund (PPF)? Let’s see what this scheme has to offer and compare the two.
Opening of SSY scheme
Now, Sukanya Samriddhi Yojana is a small savings scheme which can be opened by the parents or a legal guardian of a girl child in any post office or authorised branches of some of the commercial banks like State Bank of India, Bank of Baroda, Canara Bank and so on. Here, the girl child is termed as the “Account Holder” and the guardian is the “Depositor”.
Any parent or legal guardian of a girl child who is 10 years or below can open this account in the name of the child. In a bid to make this scheme operational, a one year grace period of 11 years has been announced. This means that a parent or legal guardian of any girl child who is born between December 2, 2003 and December 1, 2004, can open an account, with validity being December 1, 2015. You will need the birth certificate of the girl child, along with an identity proof and residence proof while opening an account under this scheme. In case you have two daughters, you can open two accounts but the total amount invested cannot exceed Rs 1, 50,000 per annum.
Rate of Interest
The rate of interest flagged off for this scheme is at 9.1 per cent, which is higher than that of PPF at 8.7 per cent. Having said that, this rate of 9.1 per cent is not fixed for the tenure and can be revised every financial year just like all other small savings schemes, including PPF.
When the recent Union Budget stated that this scheme would be exempted from taxes, most investors who then found an interest rate of 9.1 per cent quite unappealing are now keen on opting for it, say experts. The interest amount will get added to your account balance and is compounded wither monthly or annually, as per your choice. Because this is a debt-based scheme, it may not offer very high returns and hence can be used in a combination with other saving schemes, note experts.
Duration of the Scheme
The scheme matures on completion of 21 years from the date of opening the amount. Say if the account is not closed on maturity after 21 years, the balance amount will still continue to earn interest every year. In case your daughter’s marriage takes place before the maturity date i.e. before the completion of 21 years, you cannot operate the account beyond this date and no interest will be payable.
Amount to be deposited/ invested
While the scheme carries duration of 21 years, you are not required to make contributions for all these 21 years. You can invest only for the first 14 years, after which you need not deposit any further amount. However, your account will keep earning an interest rate for the remaining seven years. One can deposit a minimum amount of Rs 1,000 annually in order to keep your account active. If you fail to do so, your account turns inactive and can be retrieved only after paying a penalty of Rs 50 along with the minimum amount of Rs 1,000. You could invest a maximum amount of Rs 1, 50,000 annually, either by making regular contributions every month or by investing a lumpsum.
Premature closure and partial withdrawal
One can close the account as your daughter turns 18 provided she gets married before the withdrawal. You are allowed to withdraw 50 per cent of the balance standing at the end of the preceding financial year, only after your daughter turns 18. In a way, there is a lock-in period of at least eight years. You cannot withdraw any amount before this period.
While there is no nomination facility available as of now, in case of an unfortunate event like death of a girl child, the account will be closed and the money will be handed over to the parent or guardian of the account holder.
Union Budget 2015 has certainly made this scheme an attractive investment instrument. If you are left with some spare money even after exhausting your PPF limit, you could opt for this scheme. Sukanya Samriddhi Yojana would help you save for your girl child’s marriage or higher education, while also giving you high return and tax benefit. But yes, it is always advisable to invest in this scheme, in a combination with other instruments, as interest rates may not be as high as what they are today and hence this scheme alone will not be able to offer very high returns in the long run.
Comparing Public Provident Fund (PPF) and Sukanya Samriddhi Yojana