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For all those who are curious as well as interested to know alternatives to Sukanya Samriddhi schemes this may be useful to you all. This is to highlight how other relatively safer investment options based on compounding rate fair in comparison with Sukanya Scheme.
Sukanya Samriddhi Yojana:
Introduction to Sukanya:
Sukanya Samriddhi Yojana is a government-backed savings scheme as part of the ‘Beti Bachao, Beti Padhao Yojana’ for the benefit of the girl child. It can be opened by the parents of a girl child below the age of 10. Parents can open up to two such accounts for girls (they cannot open a third/fourth account etc, if they have more than two girls). These accounts have tenure of 21 years or until the girl child marries after the age of 18.
So if you were to invest 1,000 rs every month for 14 years – Your combined total investment would be 1,68,000 rs at the end of 14th year. Assuming – if the average interest rate on this scheme remains at 8.3% at the end of 14 years – Your investment would be worth – ₹310,077.23.
Your amount gets locked for 7 years & again if we were to use same assumption that it may return – 8.3%, then you can expect a return of 5,41,837 at the end of 7th year. So at this point in time your kid’s age would be 21, only if account was opened at the time of birth.
You can open this account across any of your local banks online. The request for the first premature closure of an SSY account can be put forward after the completion of 5 years of the account opening. That too, as per the rules, on extreme compassionate grounds such as medical support in life-threatening diseases. Still, if the account has to be closed for another reason, it will be allowed, but the entire deposit will only get interest of a Post Office Savings Bank account. And the next window for withdrawals is allowed when the girl turns 18. And the rules make it clear that the funds are for her needs and not used for any other purpose.
NOTE – As per the current provisions of this scheme NRIs are not eligible to open Sukanya Samriddhi account for their daughters. NRI’s can opt for PPF’s, NPS or FD’s as an alternative & they provide almost similar returns. Refer to the chart below NSC.
Please note – SSY is a debt investment, therefore, for a long-term need, relying more on equities helps. One may use it to invest a portion of the funds earmarked for the girl child’s needs and not entirely depend on it.
Calculations are based on government prescribed interest rates i.e. average of interest rate paid since scheme introduced in 2015 – until interest paid quarter ended March 2019. Total returns for 21 years is based on same premise that average returns may be around 8.3% & note – interest rates are subject to vary.
Numbers are pure act of mathematics during all futuristic projections regarding all investment products across the world. So please consult any authorised financial advisor before you decide on any of your investments.
Here are a few investment alternatives if you may be interested to know, how other deposits which you already know fare in comparison to Sukanya.
1. Investment into NSC Issue VIII (National Savings Certificate)
Introduction to NSC:
The National Savings Certificate (NSC) is a fixed income investment scheme that you can open with any post office. A Government of India initiative, it is a savings bond that encourages subscribers to invest while saving on income tax.
You can buy it from the nearest post office in your name, for a minor or with another adult as a joint account. They come with 2 fixed maturity periods – 5 years and 10 years. There is no maximum limit on the purchase of NSCs, but investments of up to Rs 1.5 lakhs in the scheme can earn a tax break under Section 80C of the Income Tax Act. The scheme originally had two types of certificates – NSC VIII Issue and NSC IX Issue. The Government discontinued NSC IX Issue in December 2015. So, only the NSC VIII Issue is open for subscription currently.
So if you were to invest 1,000 rs every month for 14 years – Your combined total investment would be 1,68,000 rs at the end of 14th year. Assuming – if the average interest rate on this scheme remains at 8 % at the end of 14 years – Your investment would be worth – ₹3,06,762.85.
Your amount gets locked for 7 years & again if we were to use same assumption that it may return – 8%, then you can expect a return of 5,41,837 at the end of 7th year. Total Number of years 14+7= 21 years.
Remember all projections made above are calculated just like Sukanya Scheme – Invest 1,000 rs/month for 14 years & then re-invest the lump sum amount with 7 years lock-in. Assumed 8% average returns for 21 years of investment.
Anyone who is looking for a safe investment avenue to save taxes while earning a steady income can opt for this scheme. The NSC offers guaranteed interest and complete capital protection & it comes with relatively lower duration Lockin period of 5 years. NOTE – Non-resident Indians (NRI) cannot purchase NSC certificates. The scheme is open to only Indian individual citizens.
Other Safe Investment alternatives to this you may try – PPF, NPS, FD’s. Math remains the same as explained for NSC.
2. Invest / SIP in any Equity Linked Saving Scheme (or) any Equity Facing Fund (or) any Balanced Fund
Introduction to ELSS / Balanced Funds:
It’s best suitable for investors who are looking to invest money for at least 3 years and looking for additional benefits of income tax saving apart from higher returns expectations. At the same time, these investors should also be ready for possibility of moderate losses in their investments and 3 year lock-in period.
Longer you are invested, better are your returns. And also by investing longer you are certainly saving yourself from short term momentum based swings of the market on either sides. You can derive maximum benefit of compounding interest only when you re-invest your money at regular intervals. Things to keep in mind while you make your choice – based on your age, dependents age, well defined time based needs, timing the markets with your purchasing decisions.
If you invest 1,000 rs every month for 14 years – Your combined total investment would be 1,68,000 rs at the end of 14th year & assuming rate of interest to be at an average of 10% your return would be 3,53,618 during the 14th year. And when amount is re-invested as lumpsum & gets locked for 7 years & then in return one can get 6,89,101 at the end of 7th year.
Remember all projections made above are calculated just like Sukanya Scheme – Invest 1,000 rs/month for 14 years & then re-invest the lump sum amount with 7 years lock-in. Assumed 10% average returns for 21 years of investment.
Please know – I realise the power of ELSS to give you higher benefits above 12 – 15% & your returns would be even more handsome, but i have chosen to keep the math simple & accommodate lower arbitrage. It’s easier to lure emotions by adding up bigger numbers, but right emotions are best felt only when you understand the math behind these numbers.
So even when while you consult any authorised financial advisor please find to question the logic/rationale behind numbers on the calculator. And only when logic behind numbers are understood, you can be rest assured that – you have saved yourself by minimum of 80% of common failures in investments.
3. Invest in Contra Fund / Value Fund / Focussed Fund
Contra Fund – A contra fund is defined by its against-the-wind kind of investing style. The manager of a contra fund bets against the prevailing market trends by buying assets that are either under-performing or depressed at that point in time.
Focussed Fund – Focused funds are a type of Equity Fund that invests in a limited number of stocks. These funds focus on large-cap, mid, small or multi cap stocks. Rather than diversifying across a large number of holdings, the fund manager of focused funds would prefer holding stocks that have the most confidence in.
Value Fund – A value fund is a fund that follows a value investing strategy and seeks to invest in stocks that are deemed to be undervalued in price based on fundamental characteristics. Value investing is often compared with growth investing which focuses on emerging companies with high growth prospects.
If you invest 1,000 rs every month for 14 years – Your combined total investment would be 1,68,000 rs at the end of 14th year & assuming rate of interest to be at an average of 12% your return would be 4,13,540 during the 14th year. And when amount is re-invested as lump sum & gets locked for 7 years & then in return one can get 9,14,204 at the end of 7th year.
Remember all projections made above are calculated just like Sukanya Scheme – Invest 1,000 rs/month for 14 years & then re-invest the lump sum amount with 7 years lock-in. Assumed 12% average returns for 21 years of investment.
It’s good to see Contra funds & all of the above mentioned are getting prominence off late in India. I would definitely advise diligence on your part to check with the portfolio’s of these funds to see their stock holdings from time to time. These funds are generally expected to have a good mix of large & mid cap stocks based on type of funds they are catering to.
You may use below links to do the math yourself, just as i have done above. Make sure to use right values after thorough research values compiled from many reliable websites.
NSC interest calculator:
Compound interest calculator:
** General Assumptions To Be Kept in Mind:
Inflation @ 5%
Long term capital gains tax of 10% with indexation benefit (For holding period of 21 years)
NSE lock-in period of 5 years, data calculated using perpetual continuity for 21 years. So numbers denoted are hypothetical, but certainly realistic.
Numbers shown are purely hypothetical as it based on varying interest rates which are subject to market risk. It is definitely recommended you do your basic testing of logic behind numbers & also consult authorised financial advisors periodically to help you out. Remember interest rates on all investments are derivatives of market structures & are prone to risks.
– Article by Suman Adithya Rao (SEBI Certified Research Analyst, Management Graduate in Entrepreneurship & Small Business Management)
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