There have been a lot of discussion happening and reviewing about the Sukanya Samriddhi Scheme. The scheme envisages to motivate parents to augment their savings for specific goals such as the daughter’s education and marriage. The scheme primarily highlights giving a tax-free relatively high interest rate 9.2% p.a. among all other saving schemes which is an attractive proposition but not opens to everybody. Though Sukanya Samriddhi Scheme(SSS) has many useful features and appears attractive by today’s standards but it may not be suitable for every parent as many pitfalls do exist into the scheme which one cannot utilize that high interest rate to get maximum benefit.

Sukanya_Samriddhi

To Sum up the scheme

As per the scheme, any parents of a girl child can open an account for her name from the day of her birth to the day she turns 10. The account can be activated with a minimum deposit of Rs 1,000 and a maximum amount of Rs 1.5 lakh annually can be deposited in a financial year. The contribution in such an account can be allowed for 14 years only from the date of its opening. While 50% of the accumulated amount can be withdrawn when the girl turns 18 or more and the account would mature only when she turns 21 or more. Like PPF, its investment is also eligible deduction under section 80C and its maturity would also exempt from the tax.

Like many others, you also might be thinking about investing in this scheme for the welfare of your daughter. But, before plunge into the scheme, it is imperative to know all major constraints about the scheme.

Interest rate is not Fixed

Although the current interest rate of Sukanya Samriddhi Scheme was hovering at 9.1% p.a. ,it has, now already been reduced at 8.60% p.a. But it is still not fixed for the whole tenure and it may or may not sustain in future. Every year the interest rate will be reviewed and it may change accordingly. We have seen in case of PPF interest rate has steadily dropped from 12% to 8.10% over the years, and can be expected to slowly fall as the years proceed. So in the long-run there is no guarantee that Sukanya Samriddhi Scheme may be able to attract people with 8.60% interest rate and this could be proved as the biggest regret on this scheme.

High Lock-in Period

In compare to PPF, Sukanya Samriddhi Scheme has a very high lock-in period of 21 years whereas lock-in period in PPF has just 15 years. That means one can’t consider this as a short term investment product. Hence, it is a long-term contract to ensure that you cannot skip your minimum Rs 1,000 payments each year; otherwise a penalty of Rs. 50 will be levied for each year of non-contribution.

Illiquid Investment

This account is less liquid than PPF. Because you cannot withdraw until girl attains the age of 18 years. In SSS, partial withdrawals at 50% of the accumulated corpus can be possible at marriage or after 18 year of age whichever is earlier. PPF on the hand, partial withdrawal is allowed after 6 years with certain conditions. The premature closure rules are also not support for short term point of view, especially if you compare SSS with PPF account premature closure.

Restricted Contribution and Investment Period

Although this scheme has tenure of 21 years, you cannot contribute for the whole tenure. Your annual contribution is restricted in the account only for the 14 year period, from the date of opening. So if you intend to continue with your contribution beyond 14 years, you are not allowed the same, whereas, PPF offers 15 year tenure where you can also contribute for 15 years too. Moreover, some HNI parents are ready to invest in higher amount of contribution to get more accumulated corpus but the scheme is restricted for annual contribution up to only Rs 1.50 lakh per annum.

Is this Scheme suitable for you?

Looking at all core features and pitfalls of this scheme, if you put in monetary terms and its maturity restrictions, the SSS might not be able to achieve girl’s education and marriage goals in the long run. If a couple starts putting away Rs 1.5 lakh a year in the SSS when the child is 10, the corpus would grow to only Rs 18.11 lakh in 8 years, by the time she would age at 18 which is the most likely the time to require the payment for pursuing higher education. At that time, you would be able to withdraw only 50% of accumulated corpus i.e. Rs 9.05 lakh (50% of Rs 18.11 lakh) which may not suffice to meet the education expenses. Similarly, if the girl is 5 years old and they save for 13 years, the investment would grow only to Rs 37.81 lakh by the time she is 18 and withdrawal amount would be just halved of it. Try to focus more on education expenses rather than marriage.

But if you understand the motive of this accounts properly that the goal of child education and marriage will meet, and then this is not at all the best product. However, the scheme primarily aims at ensuring that a girl child could not have to face any kind of discrimination and is in a way financially independent when she grows up. If you have a high risk appetite and longer time remaining for the fulfillment of your goals in this case your daughter’s education and marriage, then you should invest in equities via the Systematic Investment Plan (SIP) route offered by equity oriented mutual funds. This may help you to earn higher inflation-adjusted returns in the long run.

PS: This article got published in Dainik Bhaskar on 05-05-2015. You can read in Hindi Version through this link.

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Suresh Kumar Narula

SEBI Investment Advisor, Founder & Principal Financial Planner at Prudent Financial Planners
Suresh K Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner's Guild, India. He is also a member of Financial Planner's Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at info@prudentfp.in
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