Small Saving Scheme

If you are planning long-term savings for your daughter, then Sukanya Samriddhi Yojana (SSY) is one of the most talked about options. The objective of this government-backed scheme is to encourage disciplined saving for many years, especially for goals like education or marriage. But before opening an account, it is important to understand how it actually works. Let us discuss about it in detail.

Who is eligible?

This account can be opened in the name of a girl child below 10 years of age. It must be opened by a parent or legal guardian, and each girl child can have only one SSY account. A family can open accounts for two of its daughters. In certain special cases, such as the birth of twins or triplets, some relaxation is given. Once an account is opened, it remains operational till maturity, irrespective of any change in income or location.

How does investing work?

SSY is a long term investment plan. You can start with a small amount and deposit it regularly every year. In this, a minimum and a maximum limit is fixed for deposit every year. Its purpose is that instead of depositing the entire amount at once, it should be deposited gradually. You have to deposit money for 15 years from the date of account opening. After that, the account continues earning interest till maturity.

Returns and interest rates

The interest rate is decided by the government and is reviewed from time to time. Currently, it is a little more than 8 percent per annum, which is why many consider it a very attractive option among fixed-income plans. Another advantage is that the interest is compounded annually, so over the years, your savings not only keep growing — they automatically grow bigger. And because it is not market-linked, you do not have to worry about how market fluctuations will affect your returns.

Lock-in and maturity

This is not a short term investment by any means. It remains active for 21 years from the time of opening the account, although if the child gets married after a certain age, it can be closed even earlier. There is also some flexibility during this period — when the child turns 18, some money is allowed to be withdrawn from the account, mainly for studies, with certain conditions. This is why this plan is most beneficial for long-term goals. This is not for money that you may need in a few years.

tax benefits

One reason why SSY is so popular is its tax treatment. It comes under the EEE category, which simply means that your investment, the interest earned on it, and the final amount received on maturity—all are tax-free. The amount you invest also qualifies for tax exemption under section 80C. Overall, this is one of the most tax-efficient ways to save in the long run.

what things to keep in mind

In exchange for all these benefits, you have to compromise on flexibility. Once you put money in SSY, you will not get that money back for a long time. Therefore, it is wise to invest only that part of your savings which you will not need in the near future. Moreover, the interest rate does not remain fixed forever. This may change from time to time depending on government decisions, however, it generally remains quite good compared to other similar schemes.

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