Sukanya Samriddhi Account with 80C benefits – Special scheme for girl child

You must have heard about “Beti Bachao Beti Padhao” initiative recently on television advertisements. As part of it, the government has recently announced a scheme called “SUKANYA SAMRIDDHI ACCOUNT”, which is mainly for saving money for the girl child. This is a welcome move, because a lot of investors will get some extra incentive to save in the name of their girl child once they are born from a long-term perspective. You can see the exact PDF containing all information.

Let me share with you all the benefits and features of this scheme in details.
What is Sukanya Samriddhi Account?
Sukanya Samriddhi Account (SSA) is an investment scheme which can be opened for a girl’s child. The scheme is specially designed for girls higher education or marriage needs and should be opened by her parents or legal guardian(in case parents are missing). One can deposit a maximum of Rs 1,50,000 per financial year (Apr – Mar) and the yearly interest rate in this account is 9.1% compounded on a yearly basis. Note that this interest rate is not fixed and will be notified on a yearly basis or from time to time whenever applicable, very much like PPF.

The best part is that the investment in this account is exempted from income tax under sec 80C.

Amount of Deposit and Frequency

The minimum amount one has to deposit per year is Rs 1,000 and maximum amount is Rs 1,50,000. There is no limit of the number of transactions in a year. When you open the account for the first time, you have to deposit a minimum of Rs 1,000 and above that any multiple of Rs 100 (like Rs 1200 or Rs 1400 , but not Rs 1,450).

You also need to make sure that you do not skip your payments each year, otherwise a penalty of Rs. 50 will be levied for each year of non-contribution. At this point of time, it’s not clear if NRI can invest in these schemes or not. I don’t see any wordings in the official document published by govt. If someone has clarity on that, please share it in comments section.

This account can be opened before the girl attains 10 yr of age. So the moment the girl child is born , you can open this account in her name or wait for some years and open it later, but once the age of 10 is reached, one can’t open a new account for the girl child. You can deposit the money in the account only for the 14 yr period, from the date of opening, so the best thing is to open the account early itself, so that you get the maximum window of 14 yr to accumulate the money.

You will need following documents to open this Sukanya Samriddhi account. 

• Birth certificate of girl child
• Address proof
• Identity proof

One can open only maximum of 1 account per girl child and in total only 2 accounts can be opened by parents for 2 girls (one for each), but in case the second birth has resulted in twins, then 3 accounts are allowed. You can’t open multiple accounts for the same child like you do in saving bank account.

Where can you open this account?

As per the notification, this account can be opened either in a Post Office or any public sector bank. You will get a passbook under this scheme which will have details of the account holder (daughter name) along with other information like date of opening etc, like it happens in the case of PPF account. Also, the account can be transferred to any city in India later if you wish.

As this has been recently announced, I believe the banks and post office must be in the implementation mode right now and must be training their staff on this. So if you immediately visit them to open an account, you might face problems as the staff might not be 100% clear of rules. So I suggest to wait for 2-3 months and let the whole thing settle down.

Maturity and Premature Withdrawal

Sukanya Samriddhi Account will get matured after 21 yrs from the date of opening the account or before the marriage of the girl, whichever is earlier. The good part is that if parents want to close the account before 21 year for marriage purpose, they have to give an affidavit that the girl has reached at least 18 yr of age, so that one can’t use it for child marriage (before 18 yr) .

One can also partially withdraw 50% of the balance amount after the girl reaches 18 years of age, for the education purpose and rest has to be left in the account so that it can be used for the marriage purpose.

Also in the worst case, if there is death of the girl child, the account will have to be closed the money will be paid to the legal heirs (mostly parents). Apart from that, the account can still be closed much before in cases of extreme compassionate grounds such as medical support in life­ threatening diseases. death, etc.

There is no loan facility under this scheme.

How can you deposit the money under this scheme?

You can make the payment by Cash, Cheque or demand draft by going to the post office or the bank where you have opened the account. Unlike PPF or Saving bank account, you can’t deposit the money online as of now, which will really discourage those investors who are too much into online transactions. However, I am sure this is not a cause of concern for people from smaller cities and villages who are the main target for this scheme.

Tax applicable on the money deposited and earned and maturity amount?

As of now, the taxation status of this scheme is ETE, means money deposited is exempt from tax, interest earned is taxable, but maturity amount is again exempt. This is exactly how tax-saving fixed deposits work, they also have ETE status. Some people will compare with PPF which is EEE and there is no tax to be paid in any case.

How much corpus you can create by investing in Sukanya Samriddhi Account?

So how much money you can accumulate in this scheme if you try to get the maximum benefit from this scheme. Assuming you open the account the moment you girl child is born, you will have complete 21 yrs in hand, and if you invest the maximum permissible amount Rs 1,50,000 per year for 14 yrs (tenure allowed for investment) . It can accumulate to approx amount of Rs 72 lacs after 21 yrs tenure. You will have approx 55 lacs, by the time the girl turns 18 years. So in a way this account can be meet your girl’s education and marriage expenses. You can withdraw 45-50 lacs for education purpose and also have 25-30 lacs for marriage expenses (try to focus more on education expenses rather than marriage).

The below graph gives an approximate idea of how your corpus will grow in this scheme.

Should you open Sukanya Samriddhi Account for your daughter or not ?

If you look at the features of this scheme, then you will realise that its very much close to PPF features. The lock-in, interest rate, passbook facility, partial withdrawal and taxation status very much mirrors PPF. So the real question is if this is better than PPF? Or Recurring deposit? In my opinion overall it’s a good initiative by government, its intention is pure and something very much required, but it still does not beat PPF as the product. I personally didn’t find any reason why I would prefer this scheme and not PPF?

However when you look at this scheme, its much better than the traditional child policies and child plans (non-equity) from insurance companies. I would recommend this one over them.

Given the long-term nature of girls education and marriage goal, it’s important to beat the inflation and some part should be invested in equity component too. I would suggest SIP in mutual funds for some amount at least if not full. For someone who is not willing to take any risk, this scheme is a good choice. Also note that its a good idea to open this account if you are already exhausting your PPF limit and cant invest more on girls child name. Even though you will not be getting tax benefits, but you can still invest more money with help of this account.

Also one good point of this scheme is very much focused on girl’s education and marriage expenses and their future, so mentally it’s easy for investors to relate to it and keep their investment separate. Below there is a comparison between Sukanya Samriddhi Account and PPF account (SSA vs PPF), along with recurring deposit – because you can open all 3 accounts for long-term and invest on a regular basis like on per-month basis.