Should you invest in SSY?

Mr. Verma is in a terrible fix about Sukanya Samriddhi Yojana. That’s because on one hand, many personal finance experts are advising against SSY as the perfect investment for his daughter. But on the other hand, SSY is giving 8% interest, the highest amongst all other small savings schemes. he was under the impression that there was no better investment for his daughter Neha, than SSY. However, while Veram is right in thinking so, his timing is wrong.

This is because Neha is 10 years old now. Personal finance expert Jitendra Solanki says that if one has a grown-up daughter, there is no point investing in an SSY account for her education. That’s because by the time these investments mature, her prime study period would have passed. Had he opened this account when Neha was 1-2 years old, it would have been far more beneficial.

Under SSY, you can open an account for your daughter till she turns 10. Investments continue for 15 years, and mature after 21 years. If Verma opens an account for Neha in August 2023, he will have to invest in it for 15 years i.e. till 2038 and the investments will mature in 2044 i.e. 21 years later. By this time, Neha will be 31 years old, well past her age to attain higher education.

However, one can withdraw 50% of the deposited amount once your daughter turns 18. So, Verma can withdraw half the amount from the account in 2031, when Neha turns 18.  But this won’t help much towards financially fulfilling her educational goals. Moreover, he will end up breaking a long-term investment mid-way. If Verma begins investing Rs 1 lakh annually in SSY for his 10-year old daughter, he will amass Rs 11,48,000. He will only be able to withdraw 50% i.e. Rs 5,74,000. Had this investment gone on without any premature withdrawals, Verma would have had a corpus of Rs 46.53 lakhs after 21 years.

It would serve Verma better if he looks for other alternatives to fund his daughter’s higher education. Certified financial planner Jitendra Solanki says that since there are 10 years left for Neha’s higher education, Verma should invest in equity mutual funds via SIPs. This way, he can earn better returns than SSY. If Verma invests Rs 10,000 per month via SIPs in equity mutual funds, and we assume an annual return of 12%, Verma will be able to gather Rs 16.15 lakhs in the next 8 years.

Investment in SSY for 8 years will only gather Rs 11,48,000 in 8 years. Out of this, he will only be able to withdraw 50%. Whereas Verma will be able to gather Rs 16.15 lakhs via SIPs in equity mutual funds, which he can withdraw entirely.

One family can open accounts for two daughters. If a family has twin daughters, then they can open 3 accounts. You can open this account in post offices and prominent banks. You need to submit Aadhar for KYC, voter ID and daughter’s birth certificate. Post a nominal process, you can open the account. To keep the account active, you need to invest a minimum of Rs 250 annually. You can invest a maximum of Rs 1.5 lakhs in an SSY account annually.