Investing for their child’s future is an important financial goal for most parents. The 2019 BankBazaar Aspiration Index, a study of India’s financial aspirations, found that saving and investing for children’s future needs is the goal Indians consider to be of utmost importance.
Parenthood is exciting. However, saving and investing for a long-term plan is a daunting task, and finding an investment product that works specifically towards achieving this critical target could be another challenge. Doing so involves a careful understanding of one’s financial goals, risk appetite, and liquidity requirements, and knowing which investment products will get the desired results.
In terms of investment schemes, the options are many. One among them is the Sukanya Samriddhi Yojana (SSY). It scores highly as a popular and risk-free investment instrument for parents with daughters. The SSY was launched in 2015 under the Government of India’s ‘Beti Bachao, Beti Padhao’ campaign. It aims to encourage parents to save for their daughter’s education and upbringing. This is a great investment for parents raising daughters. The returns are assured, your capital is safe, the interest you earn is 100% tax-free, and you also get tax deductions under Section 80C of the I-T Act.
Let us take a look at the SSY in detail to understand how it helps in achieving your goals.
Sukanya Samriddhi Yojana – The Scheme
Sukanya Samriddhi Yojana is a government-backed small savings scheme that can be opened in post offices or at designated public and private sector banks. It is among the most rewarding investment options in the fixed income category.
Who Can Invest in Sukanya Samriddhi Yojana?
If you are a parent to a girl under the age of 10, you can open an SSY account in her name. Parents can open a maximum of two accounts in case of multiple daughters, with a limit of one account per daughter. The account matures on completion of 21 years from the date of opening of account or on the marriage of the accountholder after she turns 18, whichever is earlier.
Tenure And Amount You Need To Invest
The scheme has a maximum lock-in period of 21 years from the date of account opening. So, for instance, if you start investing when your child is 9 years old, the SSY account will mature when she turns 30. However, do note that if the SSY accountholder gets married before the completion of such period of 21 years, the operation of the account will not be permitted after the date of marriage. You can currently invest in multiples of Rs. 100, subject to a minimum of Rs. 250 and a maximum of Rs. 1.5 lakh in your SSY account in a financial year. You’ll need to invest for the first 15 years after which it earns interest for a maximum of six more years.
How Much Your Daughter Will Earn Through This Scheme?
The SSY is one of the highest-paying interest rate schemes amongst the fixed-income instruments. The rate of return for this scheme stands at 7.6% for the July-Sept 2020 quarter. An investment of Rs. 2500 every month in a year for 15 years will give you a maturity amount of Rs. 12.7 lakh. Investing in SSY will get you EEE tax benefits, which means that no tax is levied on the interest earned and maturity amount. You can also claim tax deduction for amounts up to Rs. 1.5 lakh under section 80C for your contributions.
Why You Should Consider SSY
The SSY is a lucrative option for parents looking for a high rate of return and taxation benefits in the fixed income segment. It does help in building a corpus for your child’s essential needs like education or marriage. Another advantage is that SSY provides a clear investment purpose that often leads to a disciplined investment approach. However, before you choose this option, you should assess the investment tenures to ensure the money is available to your daughter when she needs it. For instance, if you start investing when your daughter is 5 years old, the investment will mature when she’s 26, by which time her higher education may be over. Before the tenure of 21 years, you’re only allowed partial withdrawals for education, or full withdrawals under specified conditions such as marriage.
The SSY comes with a lock-in period for 21 years, which is a bit longer than other available investment options. While it saves an investor from market volatility but may not help fetch returns similar to market-linked investments. Diversification is key to any investment. So while investing in SSY will get you enormous benefits, you can always club it with other investments with varying degrees of risk and rewards to build a sizeable corpus.
The author is CEO, BankBazaar.com, India’s leading online marketplace for loans and credit cards.