It is 10 years since the introduction of SSY, a scheme introduced to help the parents save for their girl child. SSY is a unique, targeted scheme in that sense to accumulate money for the girl’s education and marriage. The tenure of the scheme is till age 21 of the girl child and the accumulations will go directly to her.
Essential features
The scheme allows a parent to invest up to Rs 1.5 lakh per annum (minimum amount being Rs 250 p.a). This investment comes under Section 80C and hence is eligible for tax deduction of up to Rs 1.5 lakh. Quite apart from that, the interest that accumulates in the account is not going to be taxed and even at the final withdrawal, it will not be taxed in the hands of the parent as the entire corpus would go to the girl child. This means that SSY is under the Exempt-Exempt-Exempt regime (like PPF), which is not very common.
The interest rates change every quarter and hence can vary a bit throughout the tenure of the product. This is for a special purpose and the interest offered has been maintained at 8 percent plus p.a level throughout, just like in case of Public Provident Fund (PPF). This is much higher than the prevailing yield of a 10-year Government Security which is under 7 percent and interest is taxable as income.
A simple reverse calculation will show that an 8 percent p.a post-tax yield is the equivalent of 11.4 percent p.a pre-tax yield. This will show how special SSY actually is which makes it a very attractive investment option. Also, the risk is negligible in this scheme as it is from Government of India.
Lock-in has a purpose
Some people have pointed out about the lack of liquidity. But, this is not some general purpose saving scheme. This is for higher education and marriage funding goals of the girl child and hence, the lack of liquidity should not be seen as a negative feature. However, if the objective is obviated as in a case where the child passes away, the money will be returned to the parent/ guardian.
Others have pointed out that the Rs 1.5 lakh cap is a limitation as the parent may not be able to accumulate the amounts required for both the education and marriage. This accusation may be true for a small segment of the population that is earning well. However, this should be sufficient in case of the predominant majority of the citizens who invest through this scheme. Though there is no detail available, the annual investment under SSY would probably be much lower than Rs 1.5 lakh that is permissible, in most accounts.
Those who are well off and want to spend far more on education of their daughter would also be investing through various other investment options. Hence, SSY for them would just be one of the pillars of funding the requirements of their child.
A solid base
Some people have expressed reservations about investing in a debt-oriented scheme for what is essentially a long-term goal. However, the pretty high returns that SSY offers (as has been shown earlier) for a debt product with low risk cannot be brushed aside. Actually, SSY comes across as a great base vehicle to bring ballast and stability to the investment sought to be created for the girl child.
Over and above this, the parent can always invest in a clutch of other options as per their risk profile and asset allocation needs.
There is another interesting aspect of the corpus that will come to the girl child. Since the child may not be earning a regular income when SSY matures, any returns from investments she would make would probably not come under the tax brackets. This would help in continued compounding and growth of the corpus.
When SSY matures, where should one invest is another question that people have. But, there is no single answer to this. This is a factor of when that money will be needed. If the money is going to be needed in the near term, it should be invested in some short-term, highly liquid investment vehicles. However, if the amount will not be required for some years, one could consider equity investments. Where one invests the proceeds of SSY once it matures, is also a factor of things like risk profile, tenure, liquidity, various goals, tax incidence, etc.
Overall, SSY is a great product to accumulate money for the future of the girl child. This is one-of-a-kind, special product that parents should take benefit of this excellent option offered by the Government.
(Views are personal and do not represent the stand of this publication.)
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