In this article, we have pointed out some good points and some less good points of Sukanya Samriddhi Account Yojana.
Sukanya Samriddhi Yojana – Pros
Tax Exemption: The biggest benefit of this scheme is that it has a tax exempt status at all stages of investment. In any investment we have to ideally look at the expected returns post-tax to be able to comment on its suitability for our goals. A fixed deposit of 10% will mean only a yield of 7% to someone who is in the highest tax bracket.
Guarantee: Both safety of your principal and guarantee of the interest payment is of the highest level.
Interest to be announced every year: The interest amount, though not fixed guaranteed, will be in line with the general investment scenario. This is a safety in itself because it will ensure that sukanya samriddhi yojana scheme sustains over different interest rate scenarios.
Important to Remember: Some years back, many people had invested in schemes like the Rajlaksmi Unit Scheme from UTI which had guaranteed maturity amounts with returns working out to a little more than 16%. As the interest rates started tending down the scheme it was not possible to fulfil the promise of such high interest rates. The scheme was launched in 1992-93 and pre-maturely withdrawn in the year 2000. Many parents who had trusted such schemes to provide for their daughters education/marriage were left bitter by this experience. Sukanya Samriddhi yojana by design will avoid such experiences.
Illiquidity/Liquidity: The lock-in can be both a pro as well as a con. Discipline in investing is one of the main requirements to build a decent corpus. Many people are tempted to pull out amounts from investment accounts to cater to various wants which might seem very urgent at those particular points. This robs them of the wealth they can create for their goals. This scheme allows by default of building of the investment discipline.
Investment limit: PPF has a limit on investment of Rs.1.5 lakhs per year. If both the husband and wife are earning, they can each invest up to Rs.1.5 lakhs in their own PPF accounts. IF they wish to invest in PPF in their child’s name, the rule says that the total amount allowed per year is RS.1.5 lakhs combined with the parent. So effectively the rule says Father+Child1+Child2= Rs.1.5 lakhs or Mother+Child1+Child2=Rs.1.5lakhs. In such a case Sukanya Samriddhi Scheme account becomes an excellent option to invest additionally if the child is a girl.
Sukanya Samriddhi Yojana – Cons
Limited Investment: There is an upper cap on investment. So if you want to send your daughter abroad for studies, this in itself will not be sufficient to meet the requirement.
This being a fixed return scheme, it is bound to have an upper cap on investment.
Age barrier: The opportunity is lost for girls who have crossed 10 years of age. This probably is from the social perspective where there is an attempt to protect little girls who might otherwise be married off early and will not have a chance at pursuing higher studies.
Illiquidity: For parents whowill have to stretch their resources to make savings in this scheme this might prove to be tough if their financial situation deteriorates. The money will not be able to be withdrawn before the girl turns eighteen.
Can i invest in Sukanya Samriddhi Yojana?
This is an excellent scheme for the girl child, both socially and from an investment point of view. Parents having daughters should evaluate this option in their investment portfolio. If the debt component of your asset allocation permits and you have the capacity to invest, full amount should be invested in this scheme for the complete duration of the scheme.
You must watch out for big dips in interest rates or any negative changes on the taxation front to decide to invest further amounts in this scheme. A very low interest rate or the scheme being made taxable would mean that you should look at reducing investment in this scheme.
On the social side of things we must encourage people in our community support structure to take benefit of this sukanya samriddhi yojana scheme. Domestic helps, drivers, cleaners etc. can be helped with the knowledge about this scheme so that their daughters can also benefit when they grow up. The lock-in structure of this product will ensure that they provide for their daughters as they grow up.
Parents with little boys would be wishing that they had this opportunity for their sons too!