Why Consider Investing Your Daughter’s Diwali Cash Gifts in Sukanya Samriddhi Yojana?

If you are the proud parent of a daughter then you can consider investing the cash gifts received by her during Diwali and Bhaidooj in Sukanya Samriddhi Yojana.

Though the cash gift amount may seem too small to make any difference to your daughter's financial goals, if you regularly make meaningful contributions to your girl child's Sukanya Samriddhi Yojana account it will turn out to be a perfect plan for her higher education, marriage, or other plans/ambitions in future.

[Read: Best Equity Mutual Funds to Plan for Your Daughter's Wedding Expenses]

What is Sukanya Samriddhi Yojana?

The Sukanya Samriddhi Yojana (SSY) is a government-backed savings scheme. It was launched in January 2015, exclusively for the benefit of girl child as a part of the 'Beti Bachao Beti Padhao' campaign to ensure their bright future.

Any parent or guardian can open and operate Sukanya Samriddhi Yojana account in the name of their girl child who is under 10 years of age. After the girl child attains the age of 18 the account has to be mandatorily operated by her, parent/guardian will not have access to the account.

But remember that your daughter, who will be the account holder and the beneficiary of the Sukanya Samriddhi Yojana Account, must be an Indian citizen and resident in India at the time of account opening. Furthermore, she has to maintain the citizenship and residency status until maturity or closure of the account, whichever is earlier.

You can open only one Sukanya Samriddhi Yojana Account per girl child. Parent or guardian can open the Sukanya Samriddhi Yojana Account for a maximum of two girl children only. It is possible to open the third account only in the event of twin girls as second birth or if the first birth results in three girl children. The following documents have to be submitted to open the Sukanya Samriddhi Yojana account:

• ✓ A duly filled account opening form

• ✓ Birth certificate of the girl child

• ✓ Medical certificate providing proof of birth of multiple girl children at once

• ✓ Identity and address proof of the parent/guardian

The initial amount required to open the Sukanya Samriddhi Yojana Account is Rs 250, which can be paid via cash, cheque, demand draft, or through internet banking. Thereafter, you need to make at least one deposit every year (keeping in mind the minimum and maximum amount limit). The maximum time period for which the parent/guardian can make deposits into the account is 15 years from the date of account opening, while the tenure of the Sukanya Samriddhi Yojana Account is 21 years.

Sukanya Samriddhi Yojana account can be opened at post offices and any authorised bank branch. At present, the facility to open Sukanya Samriddhi Yojana account online is not available. However, once the account is open, the contributions as well as the standing instructions for the same can be done through the online mode.

Minimum and Maximum Contributions

The mandatory minimum yearly contribution is Rs 250 while the upper limit is Rs 1.50 lakh in a financial year. The minimum contribution can be done as per your convenience either in one go or in instalments in multiples of Rs 50. Subsequent contributions can also be made in multiples of Rs 50. The Sukanya Samriddhi Yojana Account will become inactive if you do not make the minimum annual contributions. To reactivate such account you will have to pay a penalty of Rs 50 per default year.

The rate of Interest

The interest rate on Sukanya Samriddhi Yojana is generally higher than other small savings schemes like Public Provident Fund (PPF), National Savings Certificate (NSC) as well as interest rates on 5-year fixed deposits that most of the leading public and private sector banks currently offer.

The rate of interest on Sukanya Samriddhi Yojana is notified by the government of India on quarterly basis. The current rate of interest on deposits made into the Sukanya Samriddhi Yojana account is 7.6% p.a. (compounded annually). The interest is calculated for the calendar month on the lowest balance in the Sukanya Samriddhi Yojana Account between the close of the fifth day and the end of the month. The interest amount is credited to the account at the end of the financial year.

Suppose, your daughter is currently 5 years of age and you decide to invest Rs 10,000 every month for 15 years (the maximum period for which deposits can be made). At the end of 21 years (when your daughter turns 25 years of age) you will be able to effectively build a corpus of about Rs 53 lakh (taking into consideration the current rate of interest).

If you fail to contribute the minimum yearly contribution and the Sukanya Samriddhi Yojana Account is in default, it will still continue to fetch the interest rate as applicable to the scheme until the account matures, if it is not reinstated until then.

Tax Benefit

The contributions you make into the Sukanya Samriddhi Yojana Account are eligible for tax deduction of up to Rs 1.50 lakh under Section 80C of the Income Tax Act, 1961.

Moreover, the interest earned as well as the maturity proceeds are tax-free. Thus, like PPF the Sukanya Samriddhi Yojana Account enjoys a favourable i.e. Exempt-Exempt-Exempt (E-E-E) tax status.

Partial Withdrawal from the Sukanya Samriddhi Yojana Account

Premature withdrawal from Sukanya Samriddhi Yojana account is permitted only for your daughter's education or intended marriage once she attains the age of 18. In such case, there is an option to withdraw up to 50% of the balance in the account at the end of the preceding financial year.

Closure of the Sukanya Samriddhi Yojana Account

The Sukanya Samriddhi Yojana account matures on completion of 21 years from the date of opening of the account. If your daughter gets married before completion of 21 years, say at the age of 18, the operation of the account will not be permitted beyond the date of marriage. Upon marriage, the account matures and amount is credited to the beneficiary.

Sukanya Samriddhi Yojana account is deemed closed if the residency status of the girl child changes any time before maturity. Such change in status has to be communicated to the post office/bank within one month of the change in status.

Moreover, the account can be prematurely closed on compassionate ground such as medical treatment for life-threatening disease of the account holder or death of the guardian.

The account will be closed immediately in the event of untimely death of the beneficiary on production of death certificate issued by a competent authority. In such case, the account balance will be paid along with interest till the month preceding month of premature closure of the account to the Guardian.

If the Sukanya Samriddhi Yojana is closed for other reasons anytime after the opening of this account, it will be permitted, but the entire deposit would only earn an interest rate applicable to post office savings account.

To Conclude:

The Sukanya Samriddhi Yojana is a sensible choice to accumulate funds for your daughter's education and marriage expenses. The scheme offers lot of flexibility in terms of deposits to ensure maximum participation from parents/guardians of a girl child across economic status.

So consider investing the cash gifts received by your daughter into the Sukanya Samriddhi Yojana account rather than spending the money frivolously. Make her money-wise so that she too imparts the good habit of saving and investing, which will make her financially independent when she grows up.

Warm Regards,
Divya Grover
Research Analyst

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