While the interest rates are high on Sukanya Samriddhi Account, it's not the best product to save for children, at least, not the only product that you should rely on
Many individuals who have a girl child prefer Sukanya Samriddhi Account (SSA) while choosing tax-savings investments. It has an emotional appeal and offers higher returns than other post office small savings products.
The present interest rate on SSA is 7.6%. Public Provident Fund and Senior Citizens Savings Scheme offer 7.1% and 7.4% rates, respectively. The rates are reviewed every quarter. On 31 December, the government announced that its keeping the rates unchanged on Small Savings Scheme for Jan-March 2021.
While the interest rates are high on SSA, it's not the best product to save for children, at least, not the only product that you should rely on, according to planners.
"Only conservative investors who don't prefer equity can look SSA exclusively. As the individual is saving for the long term, equities are the best option for such long-term investments," said Mrin Agarwal, founder, Finsafe India Pvt. Ltd, and co-founder of Womantra.
Another strategy is to mix SSA with equities. Use SSA as part of the debt portfolio. "When a family starts saving for education or marriage of the girl child, they can start investing a small portion in SSA and a major chunk in equities. Later, as they get closer to their goals, they can increase investment in SSA and reduce in equities," said Melvin Joseph, managing partner, Finvin Financial Planners, a Sebi-registered investment advisory firm.
According to Joseph, a family doesn't need to necessarily treat it as an exclusive saving for the girl child. They can think of SSA as part of the debt portfolio. He suggested mixing as SSA has exempt-exempt-exempt taxation. It means there's a tax deduction on investing, no tax on accrual or withdrawal. The guardian who opens the account gets Section 80C income-tax benefit.
The government decides the interest rate on SSA, and they can change every quarter. The minimum investment is ₹250 a financial year, and the maximum is ₹1.5 lakh. If the guardian doesn't deposit the minimum amount in a financial year, the post office will treat it as a "defaulted account". However, defaulted accounts can be revived before the completion of 15 years from the date of opening of the account by paying a minimum of ₹250 and ₹50 default for each defaulted year.
The guardian of the girl child below the age of 10 can open an SSA. A family can open SSA for a maximum of two children. In the case of twins or triplet, more than two accounts can be opened.
Investors must keep in mind the withdrawal conditions. A family can withdraw money after the girl child turns 18 or passes the tenth standard in schooling. However, they can withdraw only 50% of the balance available (at the end of the preceding financial year).
SSA matures 21 years from the date of opening the account or at the time of marriage of the child.