New Delhi: The Sukanya Samriddhi Yojana (SSY) could offer a better alternative if you are planning to invest in the PPF and fixed deposits for your little daughter's education or marriage. The scheme, which was launched in January as part of the Prime Minister's Beti Bachao Beti Padhao initiative, was already eligible for deduction under Section 80C. The Budget has now made the income from the scheme tax free.
Under the scheme, one can deposit money for their little girl's education or marriage. The scheme is better as compared to the PPF and fixed deposit because it offers a higher interest rate.
While the PPF offers 25 basis points higher than the yield of 10-year government bonds, SSY offers 75 basis points higher than 10-year government bond yield for the previous year. For 2014-15, the interest for PPF is 8.7 per cent while the SSY offers 9.1 per cent interest rate.
The attractive scheme is not open to everybody and parents can open an SSY account in the name of a girl child not older than 10 years. Only for this year, a one year grace period has been offered and parents can open account for their girls who are born after December 2, 2003. Any parent can open an account for maximum of two daughters with a minimum investment of Rs 1,000 in any post office or designated branches of PSU banks.
Deposits can be made for 14 years after opening the account and the maximum investment allowed for a year is Rs 1.5 lakh. If the account has been opened for two girls, combined investment in two accounts cannot exceed Rs 1.5 lakh a year. The account matures when the girl turns 21, though up to 50 per cent of the corpus can be withdrawn after she is 18 or gets married.
Experts believe it to be a good investment policy for girl's education and marriage. If parents invest Rs 1.5 lakh a year since the girl is 10 years old, the maturity amount would be Rs 28.89 lakh by the time she is 21. If the girl is 5 years old and they save for 14 years, the investment would grow to Rs 42.88 lakh by the time she is 19. So the earlier you start to save, the more money the scheme would yield.
This might appear attractive by today's standards but it will not be enough to pay her college fees in the year 2031. The interest rate too would not be as high as it is right now. This is why experts advise that the SSY should be used in combination with other investments, such as equity funds, for saving for a child's future goals.