Do not Invest in Sukanya Samriddhi Account even if it is EEE!

Published: February 28, 2015 at 2:36 pm

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So the Sukanya Samriddhi Account is now EEE. Investments, interest and maturity are tax-free like PFF. Here is why it means nothing and why I will never invest in it if I have a daughter (I don’t).

1) You can withdraw only 50% at the age of 18. My imaginary daughters education is more important to me that her marriage. So I would appreciate higher liquidity.   I also find this feature bizarre.

2) Many, if not most, children graduate from school at age 17. The money will still be locked in this fancy sounding instrument.  Fantastic!

3) Account will mature at age 21 or when she gets married. Fantastic again. Not much use to me.

I would rather open a PPF account the day she is born and invest about 40% here and rest in equity mutual funds.  After 15 financial years, the full PPF corpus  is liquid.

The idea is to have full liquidity on the entire corpus when she is about to enter college.

Liquidity is more important that returns. Adequate exposure to equity mutual funds will offset the 1% difference in return between Sukanya Samriddhi Account and PPF.

Verdict:  Do not lock your in money in this fancy sounding scheme.  It is not meant for those who read personal finance blogs.

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Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com

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19 Comments

  1. Hi Pattu sir,

    What are your views on the accidental insurance of Rs 2 lakhs p.a on an annual premium of Rs 12. Seems good to me. If there are any caveats please advise. Also what is the process ?

  2. Hi Pattu sir,

    What are your views on the accidental insurance of Rs 2 lakhs p.a on an annual premium of Rs 12. Seems good to me. If there are any caveats please advise. Also what is the process ?

  3. I beg to have other opinion. You can’t expect all the features from one scheme. Like you don’t have liquidity in PPF also and the interest is floating. In my opinion it is one of the most attractive option to help one or two of Investors goal having features like risk free, tax exemption and long term fixed and higher return. Don’t scrap it considering only one goal, because we value your opinion and follow the most.

    1. It is meant for only goal: expenses associated with the girl child. People who like risk-free returns are those who do not understand inflation risk. Inflation in education and marriage will always be higher than this interest rate.

  4. I beg to have other opinion. You can’t expect all the features from one scheme. Like you don’t have liquidity in PPF also and the interest is floating. In my opinion it is one of the most attractive option to help one or two of Investors goal having features like risk free, tax exemption and long term fixed and higher return. Don’t scrap it considering only one goal, because we value your opinion and follow the most.

    1. It is meant for only goal: expenses associated with the girl child. People who like risk-free returns are those who do not understand inflation risk. Inflation in education and marriage will always be higher than this interest rate.

  5. Better option for those who will wait for six more years or you can say who will manage her undergraduation…

  6. Better option for those who will wait for six more years or you can say who will manage her undergraduation…

  7. I think this article considers that people are not already investing in PPF. Such number of people will be very low.

    There is no seperate PPF corpus for children.
    Deposits in PPF can be a maximum of 1.5 lakhs which includes both your account and your kids account or 3 lakhs considering husband+wife.

    Sukhanya Samrudhi is a good option for those who have already used up this PPF amount.

    Again Sukhanya Samrudhi can be again considered as part of debt asset (in asset diversification ) category. So it is not like either equity or this scheme.

    The main and only limitation I see in this scheme is the liquidity.
    Also just because you open this account does not mean you have to use the entire allowed limit per year.
    You can open the account and only invest surplus which you sure know can be locked.

    My views.

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