This Scheme Is A Tax Friendly Way To Save For Your Daughter

If you’ve been blessed with a daughter, or just have a baby girl in your life, the Sukanya Samriddhi Scheme is actually a fantastic option to build out a nest-egg for her. Here’s what you need to know:

What is the Sukanya Samriddhi Scheme?

The Sukanya Samriddhi Yojana (SSY) is a government-backed savings scheme launched under the Beti Bachao, Beti Padhao campaign. The goal of the scheme is to provide incentives to parents to save for their daughters in a way in a simple and effective way. Here’s how it works:

• Every girl child gets to have one (and only one) SSY account, which can be opened at Post Offices across India.
• You can save up to ₹1.5 lakh a year under this scheme. This contribution you make is tax deductible under section 80C.
• Your contribution earns interest every year. The interest rates on average have been in the whereabouts of 8%, making it much higher than any regular FD.
• You need to make this contribution for 15 years. And after 21 years, the account matures and the funds are released. This amount is totally tax free!

Here’s a quick calculation to tell you how much you’d get if you invested ₹1.5 lakh a year under this scheme:

If you invested ₹1.5L (or ₹12,500/month) every year for 15 years at 8%, you’d have:

1. Invested ₹22,50,000/- (1,50,000 x 15)
2. But you’d receive ~₹1,02,56,046/- after 21 years! What’s more, this amount is tax free.

Is there a catch?

While this isn’t a Ponzi scheme, the catch is the lack of liquidity. The investment is locked until the child turns 18, after which only partial withdrawals (up to 50%) are allowed. What’s more, these withdrawals are allowed only if it’s in the case of the girl’s wedding or higher education. So even if she was facing a medical emergency, withdrawal won’t be allowed.

There is also an age limit. You can only open an SSY account for your child if she’s under the age of 10.

Finally, the scheme is restricted to 2 daughters per family. If you had twins/triplets after you had your first daughter, then there’s an exception (but not the other way around).

So, is the SSY worth investing in?

Absolutely. While this is mostly a fail safe – and tax efficient – way to build a nest egg for your daughter, it can’t – and shouldn’t be – the only nest egg you have. My ideal mix would be the SSY, Mutual Fund SIPs and gold bonds. While I don’t have a girl child, I’d highly recommend this scheme for parents of girl children, especially if your daughter(s) is under the age of 5. It is certainly much more meaningful than the expensive “child plans” that claim to combine insurance and investment – but end up providing neither.