The case for not investing in the Sukanya Samriddhi Account

Here is the single most important reason for not investing in the  Sukanya Samriddhi Account.  Someone with the profile name bhaiyamafkaro in reddits IndiaInvestments page pointed out an error in my post:

Budget 2015: Sukanya Samriddhi Account – Do Not Invest

Here is a corrigendum.

My mistake: I thought one can open an account (age of daughter: 10 or less) and invest up to when she turns 21.

Fact: One can open an account if one has a daughter aged 10 or less (11 upto Dec. 2015 as a relaxation)

One must invest for 14 years after account is opened.

Partial withdrawal of 50% is allowed when she turns 18.

The account will mature 21 years after opening (this is independent of age of the daughter).

Why does this make the case even worse?

Have a look at the table and the graph (which conveys the same information)

Sukanya Samriddhi Account-chart

Sukanya Samriddhi Account

Points to ponder:

1) As mentioned in the above post, education is more important than marriage. You can withdraw 50% only and at age 18. You may need the money to pay college admission fees before she turns 18.

2) Education inflation is 10%  (conservatively!). You need to plan early and invest a sizeable about in equity. There is no other way about it. Don't waste 1.5L a year in this because it is EEE. Not all things offered free in life are good. In fact most of them are not!

3) You can invest only for 14Y (why?!!!!). Where you will invest for the remainder of the duration before education and marriage goals? You cant invest in equity then. You have missed the window of oppurtunity.

4) Most kids will be 22 or at best 23 when they will enter post-graduation. If your child is 4Y or more now, this money will not be useful to you!

5) Marriage expenses inflation is 10%  (conservatively!). You need to plan early and invest a sizeable about in equity. There is no other way about it. Don't waste 1.5L a year in this because it is EEE. Not all things offered free in life are good. In fact most of them are not!

Do not lock your money in this scheme because it is EEE, because it says Sukanya!

Value liquidity, value inflation beating returns. Use equity oriented  mutual funds +PPF or debt mutual funds for your child - be it a girl or a boy.

6) If you are reading this, this scheme is not meant for you! For God's sake this is meant for those who fix their child's marriage the moment she is born. This is for those parents who are itching to marry their daughter off regardless of her dreams. This is for those who don't care what her child studies as long as she can be married off.

* Thanks to someone with the profile name bhaiyamafkaro in reddits IndiaInvestments page for pointing this out.

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15 thoughts on “The case for not investing in the Sukanya Samriddhi Account

  1. Anshuk Jain

    I will still say that this is the best scheme if you have money to invest in your debt allocation and you don't need the money for a very long time..

    Reply
  2. Hem kumar

    Please advise if I use this just for a better rate off interest purpose.
    I can take care off all the daughter related expenses from others sources.
    B regards
    Hem kumar

    Reply
  3. sanyam jain

    With minimum deposit of Rs.1000 per year, what you think this scheme is focused on?? This scheme is for the people who works on daily wages or can say for the economically weaker section, who don't even know how to invest in equity or mutual funds.

    This is for the people who think girl child is a liability and should get married as soon as possible like 14 years or so. They don't even care for the their study and all. So if they open SSA for their girl child, their money gets stuck till the girl child attains the minimum age of getting married i.e. 18 years. This scheme is not about the rate of return or about beating inflation, this scheme is about how to improve the girls condition in our society mainly in the backward class.

    Regards
    Sanyam

    Reply
  4. JD

    Then why we need to invest in PPF? longer period, no liquidity similar to this schim.
    If any one investing in PPF and having girl child of age < 10 , He should utilise this opportunity.
    Well, Who from 100 of villages understand equity and debt. This scheme i understand is for them who are not literate and even though they can acccumulate for their girl child.

    I hope we should compare Apple to Apple.

    Keep up your thought process Sir,

    nJoy
    JD

    Reply
  5. Veeresh

    PPF is much more liquid compared to SSY. In PPF you can either take loan or do partial withdrawal at some point of time which in not at all possible in SSY. (Apple to Apple comparison)
    This post is written for financially literate people and not for the village people who don't know about equity(I don't think they will even read this post). For a time period of 21 years I guess any dumb MF will give better returns.
    As the inflation is high right now the interest of 9.1(only 0.4 more than PPF) looks attractive. This interest rate any way has to go down in the coming years. The glimps can be easily seen from the RBI rate cuts. Which will continue to happen.
    SSY is good for people who have completely dept oriented mindset and who think 0% liquidity is OK.

    Reply
  6. Santanu

    Pattu Sir,

    I think Govt. should make this SSY account such a way that I could only beneficial for targeted category people of our country. Something similar to Bhagyashree scheme, where Govt. will also donate some money to make that amount grow significantly. When already a deposit scheme PPF is in place for investment and tax saving, what is the point of launching another similar scheme in the name of girl child's future? Instead they could raise the PPF exemption limit more from 1.5 lakh to say 2.5 lakh under some other sections.

    What do you think on this, Sir.

    Reply
  7. Ruma

    I think Pattu you are doing a huge disservice to people by your asinine analysis of the scheme

    Please note these points:
    1.This scheme is for the girl child-her education and her marriage
    2.You have taken assumptions of education and marriage inflation of > 10% and used this to diss the scheme.By that no logic,you should not invest in any debt instrument.Yet you go around telling people in seminars that one should have a 60%-40% equity-debt allocation.Isn't that being hypocritical?
    3.You seem to assume that one should plan for the future using equities as the main driver just because last 20 years equity gave better returns than debt, the same will hold true for the next 20 years.You seem to forget that this has not been the experience for peoples the world over-be it in Japan,Greece,China,Brazil etc
    4.This scheme gives the highest post-tax returns in debt.It ensures that you get peace of mind and security...and provides you liquidity exactly when you want it -for the child's education and marriage.What more do you want?

    I have invested in this scheme for my daughter and would recommend (like most financial advisors except unregulated financially illiterate but excel literate ones like Pattu) this to parents of daughters.

    Pattu-Are you qualified to give financial advice?If Not,please disclose it in your blog...or go back to teaching Physics

    Reply
    1. freefincal

      As it is clear to you my background is well known to most people who read my blog. For others, enough disclaimers are available in the 'read me first' page.

      A 60-40 equity:debt asset allocation given enough will take you past the 10% return mark. Equity investing is done with a belief. It is not suitable for those who don't have it or those who don't understand volatility and loss of value risks.
      I am a strong believer in statistics. Not everyone is going to agree with you or like you. I neither let praise go to my head or criticism unnerve me.
      So you think this scheme is good. My definition of peace of mind and liquidity is different from yours. That is just statistical spreads at work.
      Your reasons for investing in this is not convincing enough to me.
      Blogging about personal finance is not regulated by any agency. We have not yet descended to that level as a country.
      I write as if I need to make the choice for my family. I don't expect people to follow it blindly. If it appeals to them, so be it. If it does not, so be it. I dont make a big deal of it either way.
      FYI I still teach physics.

      Reply
  8. Arun

    I think this is a good scheme to invest in. Since equities have run up in the last year, future equity returns will be lower. Parroting that inflation is high and equities are the only option is not a good idea. Yes, equity returns are higher but there is a also a simple matter of risk. What really matters is when you enter the market (yes, its market timing and its bad!). I may be wrong but at least you will be safe with your capital if debt allocation is more.

    Reply
    1. freefincal

      I never said equity is the only option to beat inflation. If you want capital protection, you need to invest enough to combat inflation (which most cannot btw). Whether I parrot it or not, inflation is a real evil. Ignore it at your own risk.

      Reply

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