Why Combining SSY With Equity Is Important While Planning For Your Daughter’s Future

 Planning for the future of the children is always a priority for any parent. While there are several investment options available, if you have a girl child, the Sukanya Samriddhi Yojana (SSY) scheme can be very useful.

SSY was launched on January 22, 2015 as part of Prime Minister Narendra Modi’s Beti Bachao Beti Padhao mission. It encourages parents to build a fund for their girl child’s future education and wedding expenses.

The main charm of SSY is a higher deposit rate compared to any other government saving scheme. It currently provides a return of 8.2 per cent per annum which is higher than what banks and post office offer on their term deposits. It is also higher than the deposit rate offered on National Savings Certificate (NSC) and Public Provident Fund (PPF).

Features Of SSY

Let us now look at some of the salient features of SSY.

The capital in an SSY account is completely protected, as the scheme is backed by the Government of India, making it fully risk-free with guaranteed returns. However, since the returns are linked to the government bond yield, there is no assured inflation protection.

It also provides tax benefits under Section 80C of the Income-tax Act, 1961 under the old tax regime. Also in SSY, there will be no tax on the amount invested, the amount earned as interest, and the maturity proceeds. Thus, SSY offers exempt-exempt-exempt (EEE) tax benefits. But this is available only in the old tax regime and not in the new tax regime.

One has to deposit minimum of Rs 1,000 and in multiples of Rs 100. The maximum limit is Rs 1.50 lakh per financial year. This makes it fairly affordable to lower-middle-class depositors also.

SSY is transferable anywhere in India. Hence, it is advantageous for salaried employees with transferable jobs. Also, the girl child can operate the account after she attains the age of 18 years.

However it has some drawbacks, too.

Says Madhupam Krishna, Securities and Exchange Board of India (Sebi) registered investment advisor (RIA) and chief planner, WealthWisher Financial Planner and Advisors, “The rate of interest, though high in comparison, does not beat education inflation, which while coming down in recent times, is still around 10 per cent per annum.”

Good, But Not Enough

If you contribute Rs 1.5 lakh per annum at an average rate of 8 per cent for the next 21 years, you will accumulate a corpus of Rs 75.5 lakh. So, amount-wise it may look good, but it may not be enough if your daughter wants to pursue a multi-year foreign education.

For instance, at an inflation rate of 10 per cent, if an engineering course costs Rs 25 lakh today, it will cost Rs 1.39 crore in 18 years. Also, here, we are taking the full tenure allowed. What if you have a child who is already seven years old and has only 14 years left in the scheme? We all know that compounding takes time. So, if you have less time in hand, your money needs to grow faster.

On the other hand, a similar investment of Rs 1.5 lakh every year for 21 years, in an equity fund yielding 11 per cent compounded annual growth rate (CAGR) would make a corpus of around Rs 1.08 crore. 

Why SSY Alone May Not Be Enough 

Given the significant rise in education inflation, it would be advisable to invest in some equity instrument as well to beat inflation. 

Says Amar Ranu, head – investment products & insights, Anand Rathi Shares and Stock Brokers: “For someone targeting a corpus of Rs 2 crore in 10 years, additional investments in higher-growth instruments will be necessary. A combination of Rs. 1.5 lakh for 10 years would make a corpus of Rs 24-26 lakh depending upon the rate of interest at that point in time, and an additional Rs 63,000 in monthly systematic investment plan (SIP) in equity mutual funds (MFs) will make a corpus of Rs 1.76 crore over 10 years at an estimated return of 15 per cent per annum. Thus, a total corpus of Rs 2 crore can be achieved.”  

The Benefits Of Diversification  

Despite its low rate of return compared to other instruments, SSY offers a good investment option considering its debt nature. 

Says Suresh Sadagopan, founder and principal of Ladder7 Financial Advisories, a financial planning firm: “This is hardly the only source for education funding if the needs are huge. There are going to be other investments that, along with SSY, are going to fund the education needs. In a portfolio, there is always a need to have diversification and a certain level of debt-oriented investments along with equity and other assets. Hence, we cannot disregard an investment option that has the potential to offer around 8 per cent, with very low risk.”  

Adds Krishna: “Mutual Fund investments would be liquid and you may use it for various requirements of the child. Mutual funds provide diversification, professional management, and more liquidity than other investment options, allowing you to redeem units at any time. They offer investment options like lump sum or SIPs. Potential returns can be higher but also come with higher risk.”  

“Ultimately, it might be beneficial to diversify your investments, combining both SSY for a specific goal (girl child related) and mutual funds for general wealth building. So SSY is a plain vanilla savings scheme for parents who are not well versed with markets and the economy, yet want to assure their daughters a good education. But if you are a little savvy or have an advisor to rely upon, you can diversify your investments with MFs,” he further says.  

Adds Ranu, “Since education is a long-term goal, the ideal way is to have a combination of SSY and equity MFs to bump up the returns and create the corpus faster.”