Sukanya Samriddhi Yojana

 

 WHAT IS SUKANYA SAMRIDDHI YOJANA (SSY)? 

SUKANYA SAMRIDDHI YOJANA (SSY) scheme is one of the most popular government schemes launched by the Indian Prime Minister, Shri. Narendra Modi for the betterment of girl children in India.

SUKANYA SAMRIDDHI YOJANA (SSY) was launched to offer a vehicle of saving money for the girl child of every family in India. The money saved in this scheme will be used to provide for her higher education and wedding expenses. The scheme was accepted very well by the public since this is a great step towards providing financial security and financial independence to women.

One of the most distinguishing features of the scheme is that the Sukanya Samriddhi deposit amount can only be withdrawn by the girl child and not even the depositor (parent or guardian) is allowed to withdraw money on behalf of the girl.

SUKANYA SAMRIDDHI YOJANA (SSY) is a small deposit scheme introduced by the Government of India meant exclusively for a girl child who is a resident of India and is launched as a part of Beti Bachao Beti Padhao Campaign. The scheme is meant to meet the education and marriage expenses of a girl child.

 

 

IMPORTANT POINTS TO NOTE ABOUT SUKANYA SAMRIDDHI YOJANA (SSY)

The following are some of the important features of the SUKANYA SAMRIDDHI YOJANA (SSY) that every investor must know.

1. Investor’s profile – SUKANYA SAMRIDDHI YOJANA (SSY) is meant only for a girl child below 10 years old for her education and marriage. It is most suited to parents who lack financial discipline and want to secure their daughter’s future.

 

2. Risk – SUKANYA SAMRIDDHI YOJANA (SSY)  is a debt-oriented government managed scheme that is considered to be the safest of all investments and involves zero risk of default and minimum risk of interest rate fluctuations.

 

3. Liquidity – SUKANYA SAMRIDDHI YOJANA (SSY) is highly illiquid as it involves a lock-in of 21 years hence, accessing funds for short term liquidity needs is not possible. Also, the account can be closed prematurely only after the girl child turns 18 and under specific special conditions only.

 

4. Taxation – Investment proceeds received on maturity is tax-free. Also, the amount invested is eligible for tax benefit under section 80C.

 

5. Volatile – SUKANYA SAMRIDDHI YOJANA (SSY)  involves minimum volatility since most of its assets are invested in government securities and AAA-rated corporate bonds.

 

6. Time horizon – It is only meant for long term investors having a girl child and for an investment horizon of 21 years or more.

 

7. Regular Income – SUKANYA SAMRIDDHI YOJANA (SSY)  does not provide any regular income as the interest earned gets accrued and paid with the principal on maturity.

 

8. Returns – SUKANYA SAMRIDDHI YOJANA (SSY)  offers fixed returns in the range of 8% to 9% in the form of interest which is 100% tax-free.

 

9. Asset class – SUKANYA SAMRIDDHI YOJANA (SSY)  is a debt product since all its assets are invested in debt instruments.

 

10. Cost – SUKANYA SAMRIDDHI YOJANA (SSY) being a government scheme does not involve any cost of investment.

 

11. Loan facility – Loan against SUKANYA SAMRIDDHI YOJANA (SSY)  is not available.

 

 

WHO CAN INVEST IN SUKANYA SAMRIDDHI YOJANA (SSY)?

This scheme is only meant for a girl child who is less than 10 years old and is an Indian Resident. Non-resident Indians cannot open a SUKANYA SAMRIDDHI YOJANA (SSY) account. If you or your child's residential status changes to non-resident or she takes up another country's citizenship during the term of the scheme, no interest shall be paid from the date of citizenship or residential status changes and the account will be considered closed.

 

 

MINIMUM AND MAXIMUM INVESTMENT ALLOWED IN SUKANYA SAMRIDDHI YOJANA (SSY)

The account can be opened with the minimum deposit of INR 250/- (Earlier it was 1,000/-).

Thereafter, any amount in multiples of Rs. 100 can be deposited, subject to the condition that a minimum of Rs. 250/- not exceeding Rs 1,50,000  will be deposited every financial year.

However, it should be noted that only one account in the name of the girl child can be opened. One cannot open two accounts for one girl.

The account can be opened of up to 2 girl children or 3 in case of twin girls as second birth or the first birth itself results in 3 girl children.

Deposits in the account can be made till the completion of 15 years from the date of opening the account.

For an 8-year-old, deposits have to continue until the child turns 23. Between ages 23 and 29 (when the account matures), the account keeps earning interest on the balance.

An irregular account where the minimum amount has not been deposited during the year can be regularised on payment of a penalty of Rs 50 per year, along with the minimum specified subscription for the year (s) of default. If the penalty is not paid, the entire deposit, including those made before the date of default, will receive interest at post office savings bank account rate, which is currently 4%. If excess interest has been paid, it will be reversed.

 

 

WHERE DOES SUKANYA SAMRIDDHI YOJANA (SSY) INVEST YOUR MONEY?

It is a debt product that is being promoted by the government of India and your money is primarily invested in Government Securities and other debt instruments being offered by the government of India.

 

 

WHAT KIND OF RETURNS CAN SUKANYA SAMRIDDHI YOJANA (SSY) GENERATE?

Interest rates are based on G-Sec yields which are declared by the government quarterly.

The rate spread that the SUKANYA SAMRIDDHI YOJANA (SSY)  enjoys over the G-sec rate is up to 75 basis points.

Though interest is declared every quarter, it is compounded and paid yearly.

The interest will be calculated for the calendar month on the lowest balance in an account on the deposits made between the close of the 10th day and the end of the month.

Assuming, you invest Rs. 10,000/- per month until retirement (60 years) @ average rate of 8% per annum, the corpus you will create (approximately) on your retirement i.e. at the age of 60 at various age groups will be as follows:

 

HISTORICAL DATA OF RETURNS IT HAS GENERATED SO FAR

 

FUND ACCESSIBILITY AND LOCK-IN APPLICABLE FOR SUKANYA SAMRIDDHI YOJANA (SSY)

The account matures in 21 years from the date of its opening or till the marriage of the girl after she turns 18, whichever is earlier. Once a child gets married, the account closes.

To meet the requirement of her higher education expenses and marriage, partial withdrawal of 50% of the balance at the end of the preceding financial year is allowed but only after she turns 18.

100% withdrawal of deposit amount is only possible once the girl child attains the age of 21.

 

PREMATURE CLOSURE

In the event of the death of the account holder i.e a girl child, the account will be closed immediately on the production of a death certificate issued by the competent authority, and the balance in the account will be paid, along with the interest till the month preceding the month of the premature closure of the account, to the guardian of the account holder.

In any other case, a request for the premature closure of a SUKANYA SAMRIDDHI YOJANA (SSY)  account can be put forward after the completion of 5 years of the account opening. This too will be allowed, as per the rules, on extreme compassionate grounds such as medical support in life-threatening diseases etc. Still, if the account has to be closed for another reason, it will be allowed, but the entire deposit will only get interest equal to the Post Office Savings Bank account.

 

 

WHAT ARE THE BENEFITS OF INVESTING IN SUKANYA SAMRIDDHI YOJANA (SSY)?

SUKANYA SAMRIDDHI YOJANA (SSY) offers the following benefits to its investors.

1. Protection from market volatility – Since SUKANYA SAMRIDDHI YOJANA (SSY)  is 100% debt-oriented, it provides a fixed return on investment that keeps you protected from market volatility.

 

2. Tax Efficient – It is a highly tax-efficient investment product as the money invested is tax-deductible under section 80C and interest earned and received is tax-free.

 

3. Ensures fulfillment of goal – SUKANYA SAMRIDDHI YOJANA (SSY)  can only be liquidated on maturity by the girl child who this investment was meant for and for the specific purposes. Even the depositor does not have access to these funds. This ensures that the objective of the investments remains protected until the girl child attains the age of majority.

 

4. Superior returns – Fixed returns of above 8% is a very good proposition as compared to fixed deposits or any other debt instrument.

 

5. Safe – It is the safest option with guaranteed returns and carries zero risk of principal loss since it is backed by the Government of India.

 

 

WHAT ARE THE LIMITATIONS OF INVESTING IN SUKANYA SAMRIDDHI YOJANA (SSY)?

SUKANYA SAMRIDDHI YOJANA (SSY) has the following limitations.

1. Poor liquidity – This scheme has a lock-in of 21 years or till the daughter gets married after attaining 18 years of age whichever is earlier. So this option will be least helpful to those having frequent short term fund requirements. Though premature withdrawal and closure are permissible, it involves quite a few conditions.

 

2. Limited returns – Inspite of being invested for 15 years, it fails to generate double-digit returns due to no participation in equity. ELSS funds on the other hand can generate much better returns given the time frame with comparatively much fewer restrictions.

 

3. No regular income – Despite having a lock-in period of 21 years, it fails to generate any income or liquidity until maturity.

 

4. Low Flexibility – Since money invested in SUKANYA SAMRIDDHI YOJANA (SSY)  is locked until maturity, investors have very little scope of withdrawing funds and taking corrective action by diverting funds to other avenues when the debt market does not look good.

 

 

WHO SHOULD CONSIDER INVESTING IN SUKANYA SAMRIDDHI YOJANA (SSY)?

SUKANYA SAMRIDDHI YOJANA (SSY) is most suited to the following investors:

1. Parents who lack financial discipline – This is most suited to parents of a girl child who lack financial discipline. Money invested in this scheme can only be used for the objective it is meant for. Every parent must invest in this scheme for their daughter.

 

2. Conservative investors – Since SUKANYA SAMRIDDHI YOJANA (SSY) is a debt product and offers fixed returns, it helps every parent to earn steady and guaranteed returns for their daughter.

 

 

WHO SHOULD AVOID INVESTING IN SUKANYA SAMRIDDHI YOJANA (SSY)?

SUKANYA SAMRIDDHI YOJANA (SSY) may not be the best investment for the following investors:

1. Investors with high liquidity requirements – Since it has a minimum lock-in and can be used only for the purpose it was meant for, anyone with short term fund requirements should avoid it.

 

2. High-Risk-takers - Individuals who can take higher risk to earn much better returns in equity mutual funds or direct equities.

 

3. Investors looking for regular income – SUKANYA SAMRIDDHI YOJANA (SSY) does not generate regular income for its investors. All the interest earned is accrued and paid upon maturity.

 

 

A PIECE OF ADVICE

THINGS YOU SHOULD DO WHILE INVESTING IN SUKANYA SAMRIDDHI YOJANA (SSY)

SUKANYA SAMRIDDHI YOJANA (SSY) investors must follow the below suggestions while investing to maximize the value of their investment.

1. Perform due diligence – Investors should be aware of all pros and cons of the investment they are getting into. The amount required on maturity, liquidity needs, risk appetite, etc. should be carefully assessed before signing up for this scheme.

 

2. Always diversify – Though this is one of the safest investments and protects investors with market volatility and credit risk, the returns it generates for the time horizon of over 15 years is very low and may or may not be able to beat inflation. Hence, investors must diversify their investible surplus across various asset classes like equities and gold.

 

 

THINGS YOU SHOULD AVOID DOING WHILE INVESTING IN SUKANYA SAMRIDDHI YOJANA (SSY)

SUKANYA SAMRIDDHI YOJANA (SSY) investors must avoid indulging in following practices while investing to protect their investment from losing its value.

1. You can foresee the need for funds before maturity and still investing – SUKANYA SAMRIDDHI YOJANA (SSY)  can only be liquidated on maturity by the girl child who this investment was meant for and for the specific purposes. Due to this, anyone looking forward to liquidating their investment before maturity may not be able to do so. Hence, revisit your short term fund requirements before signing up for this scheme.

 

2. Do not get influenced by anyone but financial experts – A confused investor always has a tendency of reaching out to their friends and relatives for suggestions while making critical investment decisions. That happens irrespective of the knowledge and the level of understanding the friend has about the domain. It is as good as asking a truck driver, how to fly an airplane. Such advices in most cases are based on their individual experiences and hardly on calculations or facts and figures. Hence, instead of blindly following the financial advice of a random friend, investors must act wisely and take assistance of a well qualified financial planner who has sound knowledge about the domain.

 

 

WHAT ARE THE RISKS INVOLVED IN SUKANYA SAMRIDDHI YOJANA (SSY)?

SUKANYA SAMRIDDHI YOJANA (SSY) investors should be mindful of following risks involved in this investment:

1. Inflation risk – Though SUKANYA SAMRIDDHI YOJANA (SSY)  ensures the highest level of safety of principal and gives assured returns, as a debt investment it may still not be good enough to beat inflation year on year considering the investment horizon of 15+ years and no participation of equities.

The average rate of is around 8% - 9% per annum whereas post-tax returns generated from this scheme is between 8% to 8.5%. This may lead to a shortfall when you look at the corpus you created in meeting your financial goals.

To reduce the risk, start investing partially in through SIP.

 

2. Liquidity Risk – SUKANYA SAMRIDDHI YOJANA (SSY)  can only be liquidated on maturity by the girl child who this investment was meant for and for the specific purposes. Due to this, anyone looking forward to liquidating their investment before maturity may not be able to do so. Hence, investors having short term fund requirements can consider investing in liquid funds.

 

 

TAXATION (BENEFITS, TAX EFFICIENCY AND TDS)

SUKANYA SAMRIDDHI YOJANA (SSY)  is considered as one of the most tax-efficient investment options.

Under this scheme, the amount invested is tax-deductible under section 80C, the amount earned as interest and the amount withdrawn are also tax-free.

 

 

 DOES ANY OTHER PRODUCT OFFER BETTER PROSPECTS THAN SUKANYA SAMRIDDHI YOJANA (SSY)? 

1. From a safety point of view – SUKANYA SAMRIDDHI YOJANA (SSY)  is supreme and is considered to be one of the safest of all other debt-oriented instruments as the returns it generates are fixed and there is no risk of principal loss as well since it is backed by the government.

 

2. From the returns point of view – Balanced funds generate better returns than SUKANYA SAMRIDDHI YOJANA (SSY)  as they also participate in the equity market.

Equity mutual funds, on the other hand, generate even better returns in the long run however, it carries a higher risk of principal loss as they invest directly in the stocks of various companies.

If someone has even higher risk appetite and is looking for even better returns then they can invest in or of various companies.

 

3. From a liquidity point of view – SUKANYA SAMRIDDHI YOJANA (SSY) involves a pre-defined maturity period and breaking it prematurely involves lots of restrictions. Hence, someone who is expecting any major expense soon can consider investing in liquid funds or ultra short term funds which not only generates decent post-tax returns but also offer higher liquidity.

 

 

HOW TO INVEST AND DOCUMENTS NEEDED

A SUKANYA SAMRIDDHI YOJANA (SSY)  Account can be opened in any post office or authorized branches of commercial banks by the natural/legal guardian in the name of a girl child.

The birth certificate of the girl in whose name the account is opened should be submitted by the guardian at the time of the opening of the account in the post office or bank, along with KYC documents relating to identity and residence proof of the depositor.

Listed below are all the authorized banks (public and private both) which have been granted permission by the Finance Ministry to officially open and maintain Sukanya Samriddhi Accounts.

• Allahabad Bank
• Andhra Bank
• Axis Bank
• Bank of Baroda (BoB)
• Bank of India (BoI)
• Bank of Maharashtra (BoM)
• Canara Bank
• Central Bank of India (CBI)
• Corporation Bank
• Dena Bank
• ICICI Bank
• IDBI Bank
• Indian Bank
• Indian Overseas Bank (IOB)
• Oriental Bank of Commerce (OBC)
• Punjab National Bank (PNB)
• Punjab & Sind Bank (PSB)
• Syndicate Bank
• UCO Bank
• Union Bank of India
• United Bank of India
• Vijaya Bank
• State Bank of India (SBI)