After the recent budget, there is a huge rush in the post office to invest in the recently launched Sukanya Samridhi Account for the girl child. The finance minister announced that the maturity amount and the total interest paid on the scheme will be tax free under EEE like in PPF. Let us discuss the salient features of this Sukanya Samridhi Account.
It is another small savings scheme like PPF from the government of India and it will be administered through post office and select banks. It is a long term debt investment which can help the girl child for her higher education and marriage.
Sukanya Samridhi Account – Features
Under this scheme, the account can be opened for a girl child in the age group of 0 -10. The account can be opened by parents or legal guardian. The yearly investment is flexible and you can pay any amount between 1000 – 1, 50,000 as you like in lump sum or in installments. If you don’t invest the minimum amount of 1000 in a year, there will be a penalty of Rs. 50/- to continue the account. You can invest money for 14 years from the date of opening. The account will mature after 21 years from the date of opening of the account. In case of early marriage, the account will mature on marriage after age 18. If the account is not closed at 21 the amount accumulated will continue to attract interest as per the scheme and can withdraw it later.
Is there any early withdrawal option in Sukanya Samridhi Account?
Yes, 50% of the accumulation can be withdrawn after age 18. This can help funding the child’s higher education.
What is the interest rate in Sukanya Samridhi Account – Is it fixed?
The interest rate for this scheme will be declared by government every year. For the current financial year 2014-15, the interest rate is 9.1%. Interest will be compounded annually.
What are the tax benefits under Sukanya Samridhi Account?
The investment upto 1.5 lakhs in a year will qualify for tax deduction under Section 80C of the Income Tax Act. But what is more attractive is the taxation of this scheme on maturity. The maturity amount including interest is totally tax free on withdrawal like PPF.
Is it worth investing in Sukanya Samridhi account for your daughter?
This depends on your risk profile. If you are very particular about debt investments and don’t want to invest in equity you can think of this because, it will be better than other bank deposits and insurance schemes. The tax free withdrawal is an attraction here. But don’t think that the interest rate will continue to be in this range for such a long term. As per the interest rate in the country, it will also come down in the long term.
What you can do?
It is not advisable to create the entire amount for your daughter’s needs by investing in this scheme. If your daughter’s higher education is 15 years away, you can earn better returns by investing in equities through mutual funds. But you should not invest the entire amount in equities. For the debt portion, you can consider this scheme. When you are nearing the goals like higher education and marriage, you can reduce your allocation towards equity and can increase it towards debt. This account can be useful for this. You can withdraw 50% accumulation after age 18 for her higher education and the balance amount can be withdrawn for her marriage. Along with an SIP in equity funds, this can be a suitable investment scheme for your daughter.