Sukanya Samriddhi @10: The scheme can add value to your daughter’s education corpus, but do not ignore allocation to equities

The minimum deposit in a financial year is Rs 250, while the annual cap is set at Rs 1.5 lakh. Deposits can be made up to 15 years from the date of account opening. Interest, to be credited to the accounts at the end of every financial year, is determined by the rates announced by the finance ministry at the end of every quarter.

The account will be closed at maturity—after 21 years from the date of account opening. It can also be closed and the amount fully withdrawn at the time of the child’s marriage any time after she turns 18. However, the rules do not permit any closure one month prior to or three months after the date of the wedding.

Premature withdrawals—up to 50 percent of the balance in the account at the end of the preceding financial year—are permitted once the child turns 18 or clears her 10th grade. “Withdrawals may be made in one lump sum or in instalments, not exceeding one per year, for a maximum of five years, subject to the ceiling specified and subject to actual requirement of fee or other charges,” the rules state.

Premature closure is allowed after five years of account opening in the case of the girl child’s unfortunate demise or if she were to contract a life-threatening illness. It will also be permitted in the case of the guardian’s death.

Also read: Sukanya Samriddhi Yojana is a good investment for your daughter, but it's not enough

The scheme, along with senior citizens’ savings scheme (SCSS), offers the highest returns among all small saving schemes. In addition, it comes with a host of tax benefits. “The government has bestowed it with the E-E-E (exempt-exempt-exempt) status, like PPF (public provident fund ). For one, it qualifies for the Section 80C deduction if you are opting for the old, with-exemptions tax regime. The interest accrued during the investment tenure is not taxable and the maturity proceeds are tax-free as well,” points out Amol Joshi, founder, Plan Rupee Investment Services.

While tax rules are favourable, individuals are not necessarily investing in this scheme due to the tax benefits on offer. “Irrespective of whether they live in metropolitan cities or rural areas, people are putting money in this scheme to build a kitty for their daughters. It offers an emotional connect. It’s a simple-to-understand scheme that appeals to risk-averse individuals in particular,” says Harshad Chetanwala, founder, mywealthgrowth.com.

The flip side? Lack of liquidity

The long lock-in period of the scheme is the chief limitation. “The maturity period extends to up to 21 years (or once the girl gets married after turning 18). Partial withdrawals are allowed after she turns 18 or clears her 10th standard examinations, but that may not be enough to fund her higher studies. The returns offered are good, but given the long investment runway, there is a better chance of earning higher returns via equity mutual funds,” says Chetanwala. Equities can beat inflation and generate wealth over the long term, besides offering liquidity in the interim.

However, even those with a higher risk appetite can use SSA to lend stability to their investment portfolio. And the lengthy maturity period can also work to your daughter’s advantage. “The debt component of the education corpus that you are creating for your daughter can certainly be deployed into Sukanya Samriddhi. Also, the long lock-in period is, in fact, an advantage. I do not see it as an impediment. You will not be tempted to withdraw the funds for any other purpose and they will be used solely for the intended goal of your daughter’s education or wedding,” says Joshi.

Also read: NPS Vatsalya: Why children’s pension cannot be priority over education or parents' retirement plans

Offer flexibility to improve effectiveness

Since lack of liquidity is a limitation, especially when it comes to funding, say, undergraduate courses or emergencies, the government ought to consider lowering the age for complete withdrawals. “Multiple age-wise milestones can be introduced—for instance, withdrawal should be permitted at the age of 16 years, 18 years and 21 years,” suggests Chetanwala.

The annual investment ceiling of Rs 1.5 lakh, too, can be raised to make room for meaningful fund accumulation over the long run. “It was introduced 10 years ago and education expenses have gone up considerably since then. The limit should either go up in line with inflation every year or be automatically enhanced every three years, with the hike being indexed to inflation,” says Joshi.