If you have a daughter under age 10 you would have probably promised yourself to read up on the Sukanya Samriddhi scheme launched for the girl child in January this year, launched as part of “Beti Bachao Beti Padhao” initiative of the government. We have attempted to summarize the scheme and give you our views on if you should take advantage ome.
Eligiblity
- Account can be opened by the parent or legal guardian in the name of the girl child who is less than 10 years of age.
- Currently a one year grace period has been given and girls born between 2.12.2003 and 1.12.2004 are also eligible. They can also be beneficiaries of the account provided the account is opened before 1.12.2015.
- Maximum of 2 accounts, one per girl child, can be opened by the parent, unless the second is a twin or the first is a triplet, in which case, 3 accounts are allowed.
- Multiple accounts cannot be opened in the name of one girl child.
Where can one open the account?
The account can be opened in a post office or scheduled commercial banks which are authorized to open this account
- The account may be transferred anywhere in India, if the A/c holder shifts
- The banks where the account can be opened are
- State Bank of India
- Punjab National Bank
- Canara Bank
- Bank of Baroda
- UCO Bank
- Bank of India
- Indian Bank
- Allahabad Bank
- Coproration Bank
- IDBI Bank
- Dena Bank
- United Bank of India
- Andhra Bank
- Central Bank of India
What are the documents required for opening an account?
- Birth Certificate of the girl child
- Address proof of the guardian
- Identity proof of the guardian
Maximum and Minimum Deposits
- The minimum deposit to be made per year is INR 1000 and maximum deposit is INR 150000 per year, per account.
- While the account can be opened with a minimum deposit of INR 1000, subsequent to opening the account, one can deposit in multiples of hundred, subject to the above mentioned limits per year.
- Deposits can be made in lump-sum or periodically. There is no limit on the number of deposits either in a month or in a financial year.
- If the minimum amount of INR 1000 has not been deposited, then such an account can be regularized by paying penalty of INR 50 per year along with a minimum deposit INR 1000 per year of default any time till the account completes fourteen years.
Time period of the Account
- The deposits are to be made for 14 years from the date of opening the account.
- The account will mature on completion 21 years from the date of opening the account or on marriage of the girl after she attains 18 years of age.
- If the girl were to get married after attaining 18 years of age the account will be closed and the maturity proceeds will be paid. The account will not be allowed to be operational post marriage.
- If the account is not closed on maturity (in case of completion of 21 years after opening the account and the girl remaining unmarried), the account will continue to earn interest at the prevalent specified rate applicable to the scheme.
Rate of Interest
- Rate of Interest for this scheme is not fixed. The interest is subject to revision every financial year. For this year (FY15) the interest payable will be 9.1%.
- Interest will be compounded on a yearly basis.
- You can also opt for monthly compounding on request. Interest will be paid on the balance (to the nearest thousand, downwards) in the account. Eg. If the balance is INR 50,784, Interest will be paid on INR 50,000.
Tax treatment
- The deposits are eligible for deduction under section 80C.
- The taxation status has been changed to EEE in the latest fiscal budget. This means that the deposits are exempt from tax, the interest earned is exempt and the maturity amount is exempt as well.
This recent change, making the interest tax-exempt is a huge positive for the scheme and makes it a very good option for accumulating wealth, on par with PPF.
Premature withdrawal
Partial withdrawal up to 50% of the balance at the end of the preceding financial year shall be allowed after the girl reaches 18 years of age.
Premature closure
On death of the account holder, the account will be closed immediately on production of death certificate. Interest will be payable till the last completed month prior to the premature closure. The balance in the account shall be paid to the guardian of the account holder.
In cases of extreme compassionate grounds such as medical support in life threatening diseases, death etc. the account can be closed prematurely.
How much will you be able to accumulate with this scheme?
The table below gives corpus one would accumulate at age 24 of the girl and at age 18 for various contributions. These figures are rounded down to the nearest lakh and would be indicative and not exact, since the interest paid is subject to revision. For calculation purposes, we have assumed the same rate of interest (9.1% p.a.) throughout the tenure and that investments are made in lump sums for 14 years. Even though the scheme offers redemption on completion of 21 years from opening the account we have assumed that the redemption is only made at age 24
Should you open this account?
When you have a long term goal like child’s education or marriage, equity is something which we advocate very strongly, subject to your risk appetite. This is because volatility can wreak havoc in the short term but loses significance over long time periods, provided of course that you have chosen the right stock or fund to invest in. Having said that “one cannot put all eggs in one basket” and you would want to diversify.
This scheme is a good option to build assets for time-bound long term goals and is an option you can look at, apart from equity, to help with diversifying your asset portfolio.
The argument in favor of the scheme is its tax status of EEE i.e. you can claim deduction under section 80 C when you invest and earn interest free income. (While 80 C may not be such a big draw for a lot of you who exhaust it with EPF contributions, interest being tax free is a huge positive).
The interest currently being paid is 9.1% which would be above inflation by a few percentages and it is compounded monthly/yearly as per choice. These returns are relatively high compared to other debt instruments.
Above all, this scheme is close-ended and that as per us is good because this forces discipline on you, and gives time to allow compounding to weave its magic on your money and help build a sizeable corpus!
This is therefore a good scheme and it can be one of the instruments to accumulate wealth for education and marriage of your little girl.
Given below is the link of government circular along with forms for opening the account
http://www.indiapost.gov.in/dop/Pdf%5CCirculars%5Csukanya_samriddhi_SB_Order_2.pdf
More details on their eligible government schemes are easily available online and are also on our website www.finwise.in. Apart from government schemes they could also invest in Mutual funds which are available to everyone. However, given their tendencies to trust people unconditionally, it is important that they have access to advice which is genuine and do not take undue risks with their money. You could approach your financial planner to help with these. A word of caution though, when you recommend someone, the trust they have with you gets automatically transferred to the person you refer them to, hence be sure you send them to someone who will give appropriate and genuine advice. They would otherwise be better off with government schemes that have guarantees.
