SSY Scheme: How can subscribers make the most of compounding and tax benefits?

Parents investing in their daughter’s higher education and other life goals rejoiced at the Government’s recent decision to hike the interest rate of the Sukanya Samriddhi Yojana from 7.60 per cent to 8 per cent. 

The increase came in line with debt mutual fund investors’ expectations in the long run. The interest rate is decided every quarter though one may expect the rate to not fall below the minimum rate of 7.6 per cent.

Any time before the girl child reaches the age of ten, her parents or legal guardians can open a Sukanya Samriddhi Yojana account in her name. Assuming that a couple opens a Sukanya Samriddhi Yojana account in their daughter’s name immediately after her birth, parents can continue to contribute till the girl turns 14 years old.

The accumulated corpus continues to attract interest in the remaining years till the girl child reaches 21 years However, parents of the girl child can withdraw 50 per cent of the amount collected in the account when their daughter turns 18 years old.

However, parents can consider withdrawing the entire amount as their daughter reaches 21 depending on why they need the money. Let us assume a conservative interest rate of 7.6 per cent to calculate how much money is accumulated on regular contributions in this account.

Monthly Investment: ₹12,500

Yearly Interest: 7.6% per annum

Investment Tenure: 14 years = 168 months

Translates to

Total Investment: ₹21,00,000

Interest Accumulated to Date: ₹16,35,759

Maturity Value to Date: ₹37,35,759

Assuming that parents do not withdraw any money from the account but allow the corpus to be reinvested and earn interest.

New Investment: ₹37,35,759

Yearly Interest: 7.6% per annum

Investment Tenure: 7 years = 84 months

Translates to

Total Interest Earned: ₹25,92,088

Maturity Amount: ₹63,27,847

More than the fact that parents can accumulate a good enough amount to pay for their daughter’s higher education and other goals, the added tax benefits lend this investment option an edge over most other investment options.

Under Section 80C of the Income Tax Act, an investor can claim income tax benefits on up to ₹1.50 lakhs invested in Sukanya Samriddhi Yojana accounts in a single fiscal year. The Sukanya Samriddhi Yojana interest earned and the SSY maturity amount will also be tax-free. Sukanya Samriddhi Yojana is thus an Exempt-Exempt-Exempt (EEE) investment vehicle.

“Keep it simple” is an adage that holds true for financial instruments. A relatively simple and less complicated government-sponsored scheme can help you accumulate a decent corpus that serves well to pay for your daughter’s education or marriage, depending on her financial goals.