Although small savings have somewhat lost their sheen, there is one scheme that is still worth considering—the Sukanya Samriddhi Yojana (SSY). The SSY has undergone some changes, including a reduction in interest at 8.6 per cent compared to the 9.1 per cent available a year ago. Yet, it is attractive and worth considering if you have a girl child and are a conservative investor. On its part, the Finance Ministry has introduced few changes, including the introduction of market-linked interest rates under this scheme, which means interest rates could change every quarter.

What’s changed?

• Account can be opened for even an adopted daughter
• Scheme benefit only for a girl child residing in India
• Interest rate of 8.6 per cent for the April-June quarter
• Easy premature closure of the account, in case of a medical emergency Y
• ou can transfer the account by paying a fee of Rs 100 to the post office or bank

Today, the scheme offers 50 basis point higher returns than the popular PPF and offers returns similar to the Senior Citizen Savings Scheme. Where it scores the most is on the tax treatment applicable on investments in this scheme which follows the Exempt-Exempt-Exempt (EEE) tax regime. So, there is tax benefit on investment, no tax on the gains during the tenure of the instrument and no tax on the maturity sum. On maturity, the money goes to the account holder, the girl child, and clubbing of income doesn’t apply. This means, there’s no tax on investment, accrual or withdrawal. The EEE benefit is an upside even for those who may otherwise max their Section 80C contributions as the returns are attractive, given the tax free status on maturity. For instance to earn a similar return from a tax inefficient instrument, one would have to earn about 11.3 per cent interest at the highest tax bracket. The flexibility in porting the account is an added feature along with low minimum annual contribution that favours the SSY among the several other small savings options that already exist.

olmdesk@outlookindia.com