Is it good to invest in Sukanya samriddhi Yojana for your daughter

Revealed: Is it good to invest in Sukanya Samriddhi Yojana for your daughter?

Will : legal declaration of how a person wish his/her possession to be disposed after their death

Fund : An amount of money saved or collected for a particular purpose

Return : Profit or loss derived from an investment

Investor : An investor is any party that makes an investment.

Capital Gain : Increase in the value of the asset, so you will get the gain only if you sell that asset..

It is a technique where an investor invests in a particular stock/mutual fund at different market conditions. Invested money will be average out as the investor would have invested in the same share at various times at various prices.

The gain or loss in an investment over a specified time, with respect to the amount of initial investment. It is generally given in percentage.

It is the raise in the value of Consumer Price Index. That is the rate of increase of the price of a goods or services.

So, you are planning to protect your girl child’s future. It is good to invest now on girl children for their better future. Is Sukanya Samriddhi account beneficial?
We analyse in detail about Sukanya Samriddhi Scheme and compare it with other schemes. Let us see who wins.
In this article, we are going to discuss about,

1.Sukanya Samriddhi Yojana

What is the Sukanya Samriddhi scheme? Sukanya Samriddhi Scheme was launched by the Government of India to ensure equal share to a girl child and also to save their financial future. This scheme mainly targeted at the parents for the welfare of their female child. Sukanya Samriddhi scheme encourages them to build a fund for the future education and marriage for their daughters.

    I. Salient Features of Sukanya Samriddhi Scheme:

    • Sukanya Samriddhi scheme established for the prosperity of Girl child. It was launched by Prime Minister of India, Narendra Modi on 2015.
    • What is the age limit for Sukanya Samriddhi Yojana? The account can be opened only by their parents or legal guardian after the birth of a girl until she turns 10.
    • Only one account is allowed per girl child. So, the parents can open two account maximum for each of their daughters.
    • The exception is allowed for twins or triplets, which means if the second child is twins and all three are eligible to open the account.
    • The account can be transferred to anywhere in India.

    II. How much and How long do I need to deposit in Sukanya Samriddhi Yojana?

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    How much amount can be deposited in Sukanya Samriddhi Yojana? What is the minimum amount of Sukanya scheme?
    In Sukanya Samriddhi account, it is necessary to deposit a minimum of Rs. 250 per year (Rs. 1000 earlier) in the account initially. Thereafter, any amount in multiples of Rs. 100 can be deposited.

    Can I deposit more than 1.5 lakh in Sukanya Samriddhi Yojana? However, the maximum limit is Rs. 1,50,000 per year.

    • There is no certain limit of transactions, we can make as many as transactions required in a year.
    • You can only make the payment through cash, cheque or Demand Draft by visiting Post office or bank.
    • Deposits can be made until the completion of 14 years, from the date of opening of the account.
    • After this period the account will earn only the applicable rate of interest.

    III. What is the interest rate of Sukanya Samriddhi Yojana?

      Sukanya Samriddhi Scheme currently ( October 1, 2018, onwards) provides an interest rate of 8.5%.

      Interest rates were 9.1% when the scheme was introduced and is subject to change every year by the government of India.

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    IV. Is there any tax benefits?

      Yes, Sukanya Samriddhi Scheme is completely exempted from Income tax under Sec 80 C after the budget release (2015-2016).

      This means any amount deposited under this Sukanya Samriddhi Scheme will be exempt from tax at the time of investment, accrual of interest and payout of returns.

    V. Whom do I need to approach to open Sukanya Samriddhi Yojana account?

    • Where can we open Sukanya Samriddhi account? As per the government notification, Sukanya Samriddhi Account can be opened in any nearby Post office or in any Public sector banks.
    • Passbook will be provided in the name of account holder i.e. daughter’s name along with other details like date of opening, address etc.
    • Sukanya Samriddhi account can also be transferred to any other cities inside India later.

    VI. What are the documents required for Sukanya Samriddhi account?

      To open this Sukanya Samriddhi account the following documents are required,
      – Birth certificate of your daughter
      – Latest address Proof
      – Identity proof
      – Recent photograph

    VII. What is the maturity period of Sukanya Samriddhi Yojana?

      Sukanya Samriddhi account will get matured after 21 years from the date of opening the account.

    VIII. Can we withdraw money from Sukanya Samriddhi account before maturity?

      Sukanya Samriddhi scheme will get matured if their parents arranging for a marriage for their girl child after she attains 18 years.

    IX. Partial Withdrawal from Sukanya Samriddhi Scheme:

      That is, one can partially withdraw the amount after the girl reaches 18 years of age, for educational purpose, remaining can be left in the account for marriage purpose.

    X. If the girl child passes away, this account will be matured only by the production of the death certificate.

    2. Is there any other better scheme?

    Sukanya Samriddhi Scheme is risk- free and similar to Public Provident fund. Few minor difference are explained for more clarification.

      i. What is the Public Provident Fund (PPF)?

      • Public Provident Fund is one of the popular long term investment schemes and introduced by the Government of India in 1968.
      • PPF can be opened by any individuals who are residents of India with any nationalized bank, selected authorized private bank or post office.
      • Minimum of Rs. 500 to a maximum of Rs, 1,50,000 can be deposited in one financial year.
      • The rate of interest is 8% per annum as of December 2018.
      • The maturity period is 15 years and premature withdrawals can be taken from the start of the 7th financial year.

      ii. What are the benefits of PPF?

      • Under the Public Provident Fund, loan facility is available from a 3rd financial year up to a 6th financial year.
      • PPF is completely exempted from tax under Section 80 C to the limit of Rs. 1,50,000.
      • This account can be extended for a block of 5 years after the maturity.
      • PPF also provides the facility to transfer funds online from our linked Savings Bank account.
      • Partial withdrawal can be made on the 7th year from the date of opening the account.

      iii. Comparison between Sukanya Samriddhi and Public Provident Fund Schemes.

      1 Who can open the account? Only for girl children Any Resident Indian individual
      2 Eligibility 0 to 10 years Any age
      3 Where to open the account? Post office or any nationalized banks Post office or any nationalized banks
      4 Deposit amount Minimum – Rs. 250 per year
      Maximum – Rs.1,50,000 per year of each child
      Minimum – Rs.500 per year
      Maximum – Rs.1,50,000 per year in total
      5 How many accounts per person? One account per girl child. Single account per person
      6 Frequency of Deposits Unlimited transactions 12 times maximum in a financial year
      7 Interest rate 8.5% (2018 onwards) 8% (Oct,2018 onwards)
      8 Tax benefits on Contribution amount Exempt under Section 80 C Exempt under Section 80 C
      9 Tax benefits on interest earned Tax-free Tax-free
      10 Partial Withdrawal 50% when a girl attains 18 years of age Only 50% of the closing balance at the end of the 4th year prior to the year when the money is being withdrawn or 50% of the closing balance of the previous year, whichever is lower will be the limit, is allowed from the 7th year onwards.
      11 Maturity year 21 years from the date of opening or on marriage 15 years
      12 Can it be extended? No Indefinitely in a block of 5 years after maturity
      13 Loan availability No Yes

      Let us see the return comparison in detail. Let us assume if an individual is investing Rs 1 lac every year, what is the maturity value, he will get.

      Sukanya Samriddhi Yojana – Returns calculation

      Opening Balance Yearly Investment amount Interest Rate Interest Amount Closing Balance
      0 1,00,000 8.5 8,500 1,08,500
      1,08,500 1,00,000 8.5 17,723 2,26,223
      2,26,223 1,00,000 8.5 27,729 3,53,951
      3,53,951 1,00,000 8.5 38,586 4,92,537
      4,92,537 1,00,000 8.5 50,366 6,42,903
      6,42,903 1,00,000 8.5 63,147 8,06,050
      8,06,050 1,00,000 8.5 77,014 9,83,064
      9,83,064 1,00,000 8.5 92,060 11,75,124
      11,75,124 1,00,000 8.5 1,08,386 13,83,510
      13,83,510 1,00,000 8.5 1,26,098 16,09,608
      16,09,608 1,00,000 8.5 1,45,317 18,54,925
      18,54,925 1,00,000 8.5 1,66,169 21,21,094
      21,21,094 1,00,000 8.5 1,88,793 24,09,887
      24,09,887 1,00,000 8.5 2,13,340 27,23,227
      27,23,227 1,00,000 8.5 2,39,974 30,63,201

      As the returns from PPF is tax free, there is no difference in post tax return for individual based on his tax bracket.

      PPF Returns calculation

      Opening Balance Yearly Investment amount Interest Rate Interest Amount Closing Balance
      0 1,00,000 8 8,000 1,08,000
      1,08,000 1,00,000 8 16,640 2,24,640
      2,24,640 1,00,000 8 25,971 3,50,611
      3,50,611 1,00,000 8 36,049 4,86,660
      4,86,660 1,00,000 8 46,933 6,33,593
      6,33,593 1,00,000 8 58,687 7,92,280
      7,92,280 1,00,000 8 71,382 9,63,663
      9,63,663 1,00,000 8 85,093 11,48,756
      11,48,756 1,00,000 8 99,900 13,48,656
      13,48,656 1,00,000 8 1,15,892 15,64,549
      15,64,549 1,00,000 8 1,33,164 17,97,713
      17,97,713 1,00,000 8 1,51,817 20,49,530
      20,49,530 1,00,000 8 1,71,962 23,21,492
      23,21,492 1,00,000 8 1,93,719 26,15,211
      26,15,211 1,00,000 8 2,17,217 29,32,428

      From the above chart, we can clearly see that Sukanya Samriddhi Scheme scores better than PPF.

      3. Sukanya Samriddhi Vs Systematic Investment Plans.

      Yes, there is one of the most common investment schemes which is widely chosen by many investors.

      Mutual Fund investment – SIP, is very effective when invested in equity. It is best because of its power of compounding and Rupee cost averaging.

      1) Features of Mutual Fund SIP.

      • Systematic Investment Plan is offered by Mutual fund to investors investing a fixed sum regularly.
      • It is one of the long term investment and all our investments are pooled for investing in stocks.

      2) SIP also has the benefits of the power of compounding and Rupee cost Averaging

      Comparison of Sukanya Samriddhi Yojana with Mutual Fund SIP.

      SSY – Sukanya Samriddhi Yojana SIP – Systematic Investment Plan
      Structure of the scheme Under SSY, the maximum amount to deposit by the investor is Rs.1,50,000. Only for a girl children. SIP allows investors to invest a small amount on regular basis rather than investing a huge amount in one go.
      The minimum investment for SIP is Rs. 500 and there is no maximum limit.
      Investment objective Long term investment of 21 years and mainly for daughter’s education and marriage. Long term investment suitable for long term goals such as marriage or retirement planning.
      Tax benefit This scheme is completely exempted from Income tax under Sec 80C. Both the contribution and the interest is tax free. SIP in ELSS i.e., Equity Linked Saving Scheme will be eligible for tax reduction under Section 80C. There is a long term capital gain tax of 10% flat.
      Level of Risk Risk-free High risk but Calculated risk.
      Returns Returns are guaranteed with tax-free interest. Returns are expected to be on the higher side for long term investments.
      Interest rate 8.5% Approximately 12%
      Post tax return Workings between SSY and SIP 8.5% returns and this scheme is completely tax free. Return after tax is approx .10.8% for individuals falling under all the tax brackets

      As the returns from SIP is taxed at a flat 10% rate, there is no difference in post tax return for individual based on his tax bracket.

      Equity Mutual Funds SIP Returns calculation

      Opening Balance Yearly Investment amount Expected Rate of Returns(%)* Interest Amount Closing Balance
      0 1,00,000 12 12,000 1,12,000
      1,12,000 1,00,000 12 25,440 2,37,440
      2,37,440 1,00,000 12 40,493 3,77,933
      3,77,933 1,00,000 12 57,352 5,35,285
      5,35,285 1,00,000 12 76,234 7,11,519
      7,11,519 1,00,000 12 97,382 9,08,901
      9,08,901 1,00,000 12 1,21,068 11,29,969
      11,29,969 1,00,000 12 1,47,596 13,77,566
      13,77,566 1,00,000 12 1,77,308 16,54,874
      16,54,874 1,00,000 12 2,10,585 19,65,458
      19,65,458 1,00,000 12 2,47,855 23,13,313
      23,13,313 1,00,000 12 2,89,598 27,02,911
      27,02,911 1,00,000 12 3,36,349 31,39,260
      31,39,260 1,00,000 12 3,88,711 36,27,971
      36,27,971 1,00,000 12 4,47,357 41,75,328
      10% tax on the gain (4175328-1500000)    Rs. 26,75,328 2,67,533
      Post tax Maturity Value 39,07,795

      * 12% is the assumed rate of return for long-term equity mutual fund investments.

      The above chart clearly explains that the returns from equity mutual fund SIP are far better than the returns from Sukanya Samriddhi.

      People who prefer risk- free investment, can opt Sukanya Samriddhi Scheme or PPF and who are willing to take calculated risk with better inflation beating returns will opt for Systematic Investment Plan.

      4. Final Verdict

      It depends on the kind of fund you invest in and take the risk that you can.
      RISK AND RETURN go hand in hand.

      For “safe and secure” returns the answer is undoubtedly Sukanya Samriddhi and the second choice is Public Provident Fund, because all your returns are guaranteed by the government. Also both the schemes are completely exempted from tax.

      For “higher returns” SIP is a good choice. If you are comfortable taking risk then SIP is a good choice. Also it makes sense to invest your long term money in equities.

      But the better suggestion would be choosing the investment on combo basis…investing certain amount in SIP Mutual fund and certain amount inSukanya Samriddhi Yojana. This can be decided based on your risk taking appetite and required asset allocation.

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