If you are fortunate to be a parent or guardian of a girl child less than 10 years of age, the Sukanya Samriddhi Yojana should be in your list of must-have investments. Attractive interest rate, compounding of interest, and backing by the Government make the Sukanya Samriddhi Yojana among the best and safest ways to build a tidy corpus for the education and wedding of your daughters.

You have to invest at least ₹1,000 a year and can go up to ₹1.5 lakh for each girl child. One account can be opened for a girl child, and accounts can be opened for maximum two girls in a family, including adopted children aged less than 10 years.

Deposits can be made in the account each year for 15 years from the date of account opening, and the account will mature on completion of 21 years from the date of opening. Interest will accrue in the account every year till maturity, not after. Any number of deposits can be done in a year, and deposits made until the 10th of each month are eligible for interest for that month.

Rate advantage

To encourage savings for the girl child, the interest rate offered on the Sukanya Samriddhi Yojana is higher than most other fixed income options. From 9.2 per cent during 2015-16, the rates on the Sukanya Samriddhi deposits have come down to 8.1 per cent per annum for the January to March 2018 quarter. But even this handsomely beats what is currently being offered on bank fixed deposits (less than 7 per cent) and the Public Provident Fund (7.6 per cent).

The superior rate advantage will likely continue. The interest rate on the Sukanya Samriddhi deposits is reset quarterly, and the new rates announced each quarter will apply to the accumulated corpus. Though rates are reset quarterly, compounding happens on a yearly basis.

Exempt from tax

Not just higher interest rates, the Sukanya Samriddhi Yojana also enjoys high preferential tax treatment. Investment in the account is eligible for tax deduction under Section 80C up to ₹1.5 lakh a year. Also, interest earnings and the maturity amount are exempt from tax. This places the Sukanya Samriddhi Scheme in the exalted EEE (exempt-exempt-exempt) category of investments. These tax breaks enhance the effective return of the scheme. Note though that deposit in excess of ₹1.5 lakh in a year will not earn interest; such excess amount can be withdrawn any time.

Withdrawal for higher education is allowed if the girl has turned 18 or has passed 10th standard, whichever is earlier. But such withdrawal is allowed only up to 50 per cent of the balance in the account at the end of the preceding financial year. Closure of account and withdrawal for marriage is allowed after the girl turns 18.

Make sure to deposit the minimum amount of ₹1,000 each year; else, the account will be considered as one under default. This can be regularised by paying a penalty of ₹50 for each year of default, along with the minimum amount for each such year. But if the default is not regularised within 15 years of the account opening, all the deposits in an account under default, including those made prior to the default date, will earn only the post-office savings bank interest rate. This is quite harsh. But there is an exception — if the default in yearly payment is due to the death of the guardian of the account holder, the high interest rate will continue to apply.

Bottomline : Sukanya Samriddhi Yojana can generate a tidy, tax-free sum for your daughter. Say, the rate remains at 8.1 per cent and, each year, the maximum investment of ₹1,50,000 is deployed.

After 15 years of deposits and holding for the remaining period till 21 years from the account opening, the accumulated balance will be about ₹71 lakh.

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