I just opened a Sukanya Samriddhi Yojana Account for my daughter. She is 2 years old. Though I am heavily invested in equities, I feel this is a good scheme on the fixed securities portfolio.
Sukanya Samriddhi Account is a welcome step from the Government of India to encourage people to save money for the education of the girl child. Sex ratio in India is very deplorable and this is yet another effort from the government to change the mindset of the people towards the girl child.
Sukanya Samriddhi Account which was launched on January 22, 2015 is a step forward in this direction. This financial plan aims to address the issue of gender imbalance in the country and thereby creative a better environment for the girl child.
It would be wrong on our part to compare this financial plan with other financial instruments like the PPF accounts because the very objective of Sukanya Samriddhi Account is different and unique. However, as always, we’re obsessed with safe returns and so tend to do exactly that.
Sukanya Samriddhi Yojana Account
Sukanya Samriddhi Account is a relatively new financial product which has been launched by the government and is described as a risk-free investment product. It is basically an investment scheme with tax benefits for the parents.
The main objective of this scheme is to help the parents create a corpus fund that will take care of the education and marriage of the girl child. Find the list of banks to open SSA.
With the introduction of this scheme the government wants to educate the parents that girl child is never a burden. And if the planning is done meticulously then it is possible to easily secure the future of the girl child.
Financial experts have a tendency to compare Sukanya Samriddhi Account with PPF or Public Provident Fund only because both have a similar structure and interests.
But it is unwise to compare the two as PPF is not linked to any set purpose. On the other hand, the Sukanya Samriddhi Account has a clear purpose – education and marriage of the girl child. But PPF is for your retirement corpus.
Who can open a Sukanya Samriddhi Account?
Sukanya Samriddhi Account can be opened only for a girl child who has not exceeded 10 years of age. But for the 1st year of operation, Government of India has announced a grace period of 1 year which means that an account can also be opened for a girl child who is born between 02/12/2003 and 01/12/2004.
The account can be opened only by the parents or the legal guardian. The Sukanya Samriddhi YojanaAccount should be in the name of the girl child and for one girl child can only open one account. This means that a maximum of 2 accounts can be opened if you have 2 girls.
How much money can I deposit?
A minimum amount of Rs 1000 needs to be deposited in the Sukanya Samriddhi Account every financial year.
The upper limit has been set at Rs 1.5 lacs but there is no limit on the number of deposits that you can make in a financial year. However, when you open the account for the first time you need to make a mandatory deposit of Rs 1000.
What if I miss payments?
Also, it may happen that you are unable to deposit any money in a particular year or you are depositing an amount which is less than the minimum requirement of Rs 1000. In these cases you need not worry as for each defaulter year you will be liable to pay Rs 50 only to regularize the account.
But it needs to be noted that along with the penalty one also needs to pay Rs 1000 for each year of default. An account which has become irregular can be regularized till 14 years is completed.
Can I make online payments?
There is one important thing to note about Sukanya Samriddhi Account. All deposits must be made in cash, check or bank draft and online payment is not possible.
This will be a big turn-off for many people in today’s age but we hope that the online method of payment will be enabled by the government as soon as possible.
What is the interest rate?
For the FY 2015 – 16, the interest rate for SUKANYA SAMRIDDHI ACCOUNT has been set at 9.2% which is calculated on a monthly basis but will be added to the account on a yearly basis only.
The interest is free from Income Tax as announced in the 2015 Budget. However, this rate of interest is not fixed and will be revised every year just like in the case of PPF.
On the basis of interest rate alone people might opt for Sukanya Samriddhi Account as it gives a better interest rate but, as we said, the end purpose is different for the 2 financial instruments.
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What is the duration of this scheme?
The scheme matures after the completion of 21 years from the day of opening the SUKANYA SAMRIDDHI ACCOUNT or when the child gets married, whichever is earlier. Contrary to popular perception, the girl attaining 21 years has no significance for the maturity period of the scheme.
Although the scheme is for 21 years, one is allowed to make deposit contributions only for 14 years. After the completion of the 14th year, you cannot make any further contributions but the account will continue to accrue interest at the announced rate for the remaining 7 years i.e. till the 21st year.
There are a couple of interesting things to be noted here. If the account is not closed even after 21 years, then the amount will continue to earn interest each year.
But if the girl gets married before the date of maturity of the scheme, operation of the account will not be permitted and no interest will accrue post the marriage date.
When & How will you get the money?
Sukanya Samriddhi Account matures after a 21-year period but you can withdraw the amount for marriage purposes before the completion of this 21-year period.
Parents need to give an affidavit which will confirm that the girl has attained adulthood and hence utilizing the money for her marriage.
Parents can also withdraw 50% of the amount after the girl attains her 18 years. But the money can be used only for the education of the girl child. The remaining amount must be kept in the account to be used at the time of marriage.
Are there any tax benefits for the Sukanya Samriddhi Scheme?
The Budget of 2015 has place Sukanya Samriddhi Account in the EEE(deduction, interest, maturity) category which basically means that all contributions to the scheme are eligible for deductions u/s 80C.
The interest that is accrued on a yearly basis is also non-taxable. The amount at the time of maturity or withdrawal is also free from taxes.
But keeping the Sukanya Samriddhi Account u/s 80C has certain drawbacks. This section has a ceiling of Rs 1.5 lacs and is often used by other investment options such as term insurance, 5-yeard FDs and PPF.
So if you invest the full amount of Rs 1.5 lac in Sukanya Samriddhi Account and also have other investments then you will never get the full benefit. The upper limit of Section 80C will always restrict the deductions to just Rs 1.5 lacs.
Are there any partial withdrawals or permanent closures?
As already mentioned, 50% of the amount can be withdrawn when the girl has attained 18 years of age. Permanent closure of the account is also possible but the girl should be 18 years of age or more and she must get married before the withdrawal.
An Illustrative Table to show sample calculations
|Year of account||Age of the girl||Opening Balance||Yearly Contribution (12*5000)||[email protected]%||Closing balance|
As mentioned earlier, when the girl attains 18 years of age, 50% of the balance (preceding year) can be withdrawn. You can download the SSA application form here.
Only 3 documents are required for opening a SUKANYA SAMRIDDHI ACCOUNT in the name of the girl child. These are
- Birth certificate of the girl child
- ID proof of the parent or the legal guardian
- Residence proof of the parent or the legal guardian
Note: NRIs are not allowed to open Sukanya Samriddhi Account yet. We hope the GoI allows them to do so.
The very basis of the Sukanya Samriddhi Yojana Account is to provide financial support for the education and marriage of the girl child. Since the account can only be opened up to 10 years, it becomes obvious that the scheme is of long term tenure and one can only withdraw a part of the fund when the girl turns 18.
The scheme aims to fund the long-term goals of the parents although the interest rate of 9.2% is a real dampener. However, since this is not really a diversified mutual-fund and the goal of the scheme is noble and different, the rate of interest should not matter much.