You are blessed with a baby girl and want to begin investing in her name. For many parents, the first option that comes to mind is the Sukanya Samriddhi Yojana (SSY).
Backed by the government and offering fixed returns with tax benefits, the scheme has become one of the most popular long-term investment options for daughters.
However, while the returns may look attractive, there are important restrictions around lock-in and liquidity that parents often overlook before investing.
Core features
The current interest rate on SSY is 8.2%. The government reviews and resets it every quarter in line with other small savings schemes and the prevailing interest rate cycle.
You can invest a minimum of ₹250 and a maximum of ₹1.5 lakh in a financial year. The account can be opened any time before the girl child turns 10 years old.
Premature closure before maturity is permitted only under specific circumstances, such as the daughter’s marriage after she turns 18. Proof of age is mandatory in such cases.
Contributions to SSY qualify for deduction under Section 80C of the Income Tax Act in the old tax regime. While the new tax regime does not offer this deduction, the interest earned and maturity amount remain tax-free under both regimes.
“One lesser-known feature of SSY is that the account cannot be attached for the liabilities of the parents. Creditors of the parents cannot claim this money to settle their debts, which helps ensure the corpus remains protected for the child," says Chandigarh-based certified financial planner Harminder Garg.
Corpus math
If you invest ₹1.5 lakh every year from the year the child is born, the corpus may grow to nearly ₹44.7 lakh in 15 years at the current interest rate of 8.2%.
With no additional contributions after the 15th year, the corpus continues to compound. By the time the child turns 18, it may grow to around ₹56.69 lakh.
However, there is an important limitation: only 50% of the balance (around ₹28.34 lakh) can be withdrawn at that stage for higher education.
If you make this partial withdrawal, the remaining corpus may grow to roughly ₹35.91 lakh by maturity at 21 years.
On the other hand, if no withdrawal is made at 18, the corpus may grow to nearly ₹71.82 lakh at maturity.
Goal alignment
Garg said headline calculations around maximum investment amounts mean little unless parents first evaluate their actual goals.
“SSY enables you to invest for education and marriage. But linking these goals only with SSY would not help. You must first know how much corpus you want for both goals. Asset allocation should happen at the goal level. We generally recommend allocating 25-50% to SSY and the rest to diversified equity funds,” said Garg.
Mumbai-based registered investment advisor Viresh Patel agrees that SSY alone may not be sufficient for long-term goals such as higher education and marriage.
“Consider it as part of the debt allocation for your child’s education goal. Given the long investment horizon, parents should also invest in equities,” he said.
Lock-in debate
Whether SSY is suitable depends largely on your financial behaviour and liquidity needs.
For some families, the long lock-in period works as a positive feature because it prevents them from dipping into the child’s education corpus during emergencies.
“We need to understand the behavioural aspect of investing. Returns alone cannot be the yardstick. I have seen many clients use children’s investments during emergencies. The lock-in in Sukanya Samriddhi helps ensure that such an important life goal remains protected,” said Patel.
At the same time, the lock-in can become restrictive. Even if your daughter’s education expenses arise at 18, only half the balance can be withdrawn. Had the same money been invested in more flexible instruments such as mutual funds, the entire corpus could potentially have been available when required.
Start early
The scheme works best when started early because it needs time for compounding to create a meaningful corpus.
Patel warns that parents who begin investing when the child is already 8-9 years old may not benefit as much as those who start early.
“The scheme is useful only if you allow compounding to do its work. If you start when the child is already 9, there are only nine years left before she turns 18. Since only half the amount can be withdrawn at that stage, the available corpus may be too small compared to the actual education requirement. Starting before the child turns 3-4 years old is ideal. Right after birth is even better,” he said.
Sukanya Samriddhi Yojana can be a useful and disciplined savings tool for parents looking for safety and fixed returns. The tax benefits and sovereign backing add to its appeal. However, the long lock-in and withdrawal restrictions mean it should not be viewed as a standalone education-planning solution.
Experts recommend combining SSY with equity-based investments such as mutual funds to build a more inflation-beating and flexible education corpus for a daughter’s future goals.