Launched over a decade ago under the Beti Bachao, Beti Padhao initiative, the Sukanya Samriddhi Yojana (SSY) remains a cornerstone savings scheme for parents planning their daughter's financial future. This government-backed post-office scheme promises a fixed, tax-free return to build a corpus for higher education or marriage. But with evolving financial markets, is it still the most lucrative choice? We delve into the scheme's details and compare it with alternatives like the Public Provident Fund (PPF) and equity mutual funds.
SSY Scheme: Key Features, Eligibility, and Rules
The Sukanya Samriddhi Yojana account is exclusively for resident Indian girls below the age of 10 at the time of opening. A parent or legal guardian can operate the account until the girl turns 18. A family is generally allowed to open accounts for a maximum of two girl children, with exceptions for twins or triplets under specific conditions, supported by an affidavit.
The investment window is flexible yet disciplined. You can start with just Rs 250 and must deposit a minimum of that amount every financial year. The upper limit is Rs 1.5 lakh per annum, with deposits accepted in multiples of Rs 50. Contributions are mandatory for 15 years from the account opening date. Failure to deposit the minimum results in a default, which can be regularised by paying a Rs 50 penalty per defaulted year along with the arrears, within the 15-year deposit period.
All deposits qualify for a tax deduction under Section 80C of the Income Tax Act under the old tax regime. The account matures after 21 years from the date of opening, offering a long-term horizon for wealth accumulation.
Withdrawal and Premature Closure Provisions
The scheme allows for partial withdrawals for education purposes after the girl child turns 18 or passes Class 10, whichever is earlier. Up to 50% of the balance from the previous financial year can be withdrawn, subject to actual fee proof, with a limit of one withdrawal per year for a maximum of five years.
Premature closure is permitted for the girl's marriage, provided she is at least 18 years old, and the request is made between one month before and three months after the wedding date. In case of the account holder's demise, the account is closed immediately, with the balance paid to the guardian. Early closure after five years is also allowed under extreme circumstances like life-threatening illness.
Returns, Tax Benefits, and the Final Corpus
The current interest rate on SSY is 8.2% per annum, notified quarterly by the Ministry of Finance. Interest is calculated monthly on the lowest balance between the 5th and the month's end, and credited annually. The most significant advantage is that the entire interest earned and the final maturity amount are completely exempt from income tax.
To illustrate the power of compounding, if a parent invests the maximum allowable Rs 1.5 lakh every year for 15 years (total investment: Rs 22.5 lakh), the corpus upon maturity at 21 years would grow to approximately Rs 71.82 lakh.
Expert Analysis: Is SSY the Ultimate Choice?
Financial experts acknowledge SSY's strengths but caution against relying on it as the sole investment vehicle. Prableen Bajpai, Founder of FinFix, calls it a "wonderful product" in the fixed-income space and prefers it over PPF due to the higher interest rate. However, she highlights the long lock-in period of 21 years, which can restrict liquidity for education needs, and advises against complete dependence on it as other avenues may offer superior returns.
Mohit Gang, Co-Founder & CEO of Moneyfront, points out a critical gap. "SSY is a very good fixed‑income, tax‑efficient product... but cannot necessarily be a 'no-brainer' because long‑term goals like education or marriage usually need an equity component to beat inflation meaningfully," he states. He recommends combining SSY with equity investments for a balanced portfolio.
Rohit Shah, a Certified Financial Planner and Founder of Getting You Rich, underscores the safety and tax benefits. "It's perfect for parents who want guaranteed safety," he says. Yet, he warns about the returns gap. With education costs inflating at 8-10% annually, the 8.2% return from SSY may not suffice. Equity mutual funds, for those with suitable risk appetite, have the potential to generate 11-12%, creating a substantial difference over two decades.
Comparing SSY with Other Investment Avenues
Public Provident Fund (PPF): While offering similar tax benefits, PPF currently yields a lower 7.1% interest and has a 15-year lock-in, making it comparatively more flexible than SSY's 21-year tenure.
Equity Mutual Funds: For long-term horizons of 15-20 years, a well-constructed equity portfolio is expected to outperform fixed-income instruments like SSY significantly, albeit with higher market risk. Experts suggest using SSY for the debt portion and complementing it with equity funds.
Hybrid Funds: For investors seeking a balance of safety and growth, balanced or aggressive hybrid funds can be a suitable middle ground, offering exposure to both equity and debt.
In conclusion, the Sukanya Samriddhi Yojana is an excellent, risk-free foundation for a girl child's future fund, offering discipline and tax efficiency. However, for goals two decades away, a hybrid strategy combining SSY with equity-oriented investments might be more effective in building a corpus that outpaces education inflation and secures a brighter future.
