Category Archives: Child Education & Marriage

What is Sukanya Samriddhi Scheme?

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Sukanya Samriddhi Account is a welcome step by the govt. of India which is a part of its “Beti Bachao – Beti Padhao” initiative and was launched on 22nd January 2015. It is a small savings scheme, which can be opened by the parents or a legal guardian of a girl child in any post office or authorized branches of some of the commercial banks. Let’s understand in detail: –

What is the Return on Sukanya Samriddhi Scheme?
The interest rate offered on this scheme was flagged off with a 9.1%, which is further increased to 9.2% for the financial year 2015-16. This interest rate is not fixed and is subject to a revision every financial year like PPF.

Who can open this account?
Parents or a legal guardian can open an account in the name of a girl child right from the birth of a girl child till she attains the age of ten years. Government has allowed a one-year grace period to make the eligible age till 11 years of completion.

How many accounts one can open?
Only one account can be opened per girl child to the maximum limit of two children except in a case of twins or triplets, wherein this facility would be extended to the third child which means you can even open three accounts in case you are blessed with twin girls on the second occasion or in case the first birth itself results into three girl children.

What is Minimum & Maximum Investment amount I can make?
To keep your account active, you need to deposit a minimum of Rs. 1,000/- in a particular financial year, failure to do so will make this account inactive. The same can be activated again by paying a penalty of Rs. 50/- along with the minimum amount required to be deposited for that year i.e. Rs. 1,000/- at present. The maximum amount, which can be invested in this, is Rs. 1,50,000/- in a year and there are no limits to the no. of times you can make these contributions.

What is the duration of Sukanya Samriddhi Scheme?
The total duration of the scheme is 21 years and it will mature on the completion of 21 years right from the date of opening of this account. One can even continue to earn interest as specified every year if account is not closed after completion of 21 years.

Do I need to make contribution every year?
No, you have make contribution to this scheme for the first 14 years only eventhough the scheme has a duration of 21 years, post that there you do not need to deposit further amount but your account will keep earning the interest rate applicable for the remaining 7 years.

Can I close it Prematurely?
Yes, this account can be closed prematurely when your daughter completes 18 years of age and provided she gets married before the withdrawal. Since the maximum permissible age is set as 10 years, the scheme by default carries a minimum duration of 8 years.

Can I make a Partial Withdrawal?
Yes, you can withdraw partially to the extent of 50% of the balance standing at the end of the preceding financial year but only in a case when your daughter attains the age of 18 years. This make sure that you have a lock-in period of at least 8 years and one cannot withdraw any money form the account before that.

Who will receive the Maturity proceeds?
On maturity of this account, the entire proceeds i.e. account balance along with the interest as accrued on the account will be paid to the account holder i.e. girl child directly. It gives a good financial independence to the girl, which indeed is a good move.

Can I make online payments to this scheme?
No online payments can be done at the moment and deposit can be made only by cheque, cash or a demand draft.

Taxability of Sukanya Samriddhi Account!
The best part of this scheme is that it offers complete tax-free treatment on interest income and as well as the maturity proceeds. It comes under EEE regime i.e. it is totally exempt at all the stages like on deposit, exempt on returns, exempt on maturity.

Tax benefit for investment made in Sukanya Samriddhi Account!
Now the erstwhile popular section 80C also includes the investment made in Sukanya Samriddhi Account to the extent of maximum limit of Rs. 150000/- , all the contributions to the limit as mentioned will be eligible for tax saving u/s 80C apart from PPF/MF ELSS/Insurance premium/NSCs/PF etc.

Conclusion: Should you open Sukanya Samriddhi Account for your daughter?

On closely observing the scheme you will find that it is very similar to one of the other most popular tax free tax saving investment option i.e. PPF (Public Provident Fund) which offers tax free returns of 8.7% and keeps changing every year as notified by the government. The other similarities are in terms of its lock-in, passbook facility, partial withdrawal and taxability; so the question, which needs to be asked whether Sukanya Samriddhi scheme is better than PPF or any other fixed returns bearing instrument per se?

If you look at the overall intention of the government, then I think it is a well-intended financial product but still cannot beat PPF except with slightly higher rate of returns. But at any point of time, it is way better than all the traditional so called child insurance plans i.e. insurance policies which are prominently sold in the disguise of safeguarding your children’s future, rather it only safeguards the agents future, so in comparison to those wrongly bought or sold child plans, Sukanya Samriddhi schemes is a good option to go with. After all having a girl child is a bliss and why not secure our ghar ki Laxmi by investing for her better future, beti bachao- beti padao!

When, where and How to invest for child’s education?

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What is the right time to start planning for saving for children’s education?

Planning for children’s education is one of the most important goals for any parent and every parent should plan for it well ahead of times. Ideally it should start right at the time when a child is borne because investing early provides a good time horizon for parents to spread their investments in to different asset class. This way they are better equipped to optimize the risk and take advantage of the aggressive market like equity investments which carries the potential of generating the best returns compared to any other investment options like FDs/PPF/PF/RDs/Gold/Bonds etc. Apart from better risk management and potential of getting much higher returns, investing early gives the great benefit of leveraging the power of compounding because with time in your hand one can really start small for generating the desired huge corpus which can grow gradually to serve the purpose.

In fact every parent should make education planning as a very important parameter of their overall financial planning process. To summaries, every parent should:

1. Start Early
2. Start Small but systematically over 18 to 21 years of period
3. Take more of Equity route to generate the desired corpus by way of investing in Mutual Funds SIPs
4. Use the power of compounding to their advantage
5. Make this factor an important part of overall financial planning process

Where to invest for achieving child education goal?

As we know the products as available for investments ranges from fixed investments like FDs/PPF/NSCs/KVPs/RDs/Bonds or Gold/silver or Mutual funds/equity market or Real estate. I am not counting insurance policies which are not an investment option but a protection means. Out of any of the investment options as mentioned above, one of the best instruments for investing for child education would always be the equity market or getting to equity market via mutual funds SIPs because of the factors as mentioned in the first paragraph about its higher potential of generating returns coupled with a power of compounding. Investing in fixed instruments will not be able to give you more than 9% returns and that too it is difficult to invest in smaller amounts on a monthly basis and due to the ever rising cost of education it is almost impossible to achieve and meet desired targeted funds as planned for child’s education at the regular interval of say 18 years to 22 years of their age when the need for basic to higher education arises.

Though with increased awareness people have already started taking SIPs route of Mutual funds for investing for children’s education but still it is seen that parents often ends up investing their hard earned money in the typical life insurance policies which are purely suited for these companies and the agents. You can see various advertisements on a daily basis across all mediums which asks you to invest in a so and so product which secures your child future but if you simply pick any one of these product then you will find that almost in all cases these products are nothing but purely sold unwanted complex life insurance products which are driven by huge insurance commission of agents and does not add any value to you as an investor.

There are three main reasons why people end up buying it in spite of knowing the pitfalls:
1. First, it is based on emotions
2. No one has time to plan their finance better due to a very hectic work life, so what comes better than a readymade customized product like a combo meal or a fast food
3. And the third is the agent who in most cases are either your relatives/friends or friend’s children starting their careers and you don’t have any options not to support them as we can’t say no to their persistent request of investing in these products.

However my intention is purely to highlight the importance of securing your child’s education and how important it is and since we all are anyways so attached to our kids then why should you not take some time out and invest only after a thorough research and does not end up compromising our children’s future, why bogged to any of the reasons as mentioned above, take out sometime and invest smartly.

And yes, the question is not buying the insurance but securing your children’s growing years in terms of your untimely death, who will fund their education and maintenance, so yes you need to have a more than enough financial security to cover up for the untimely losses. So go ahead and do buy sufficient insurance cover ranging from 1 crore to 2crores or more depending on your insurance requirement based on your financial assessment. Always remember that buy only pure vanilla insurance term plan which provides a very high sum assured at a very low premium cost, do read one of my earlier article on this at idiva http://idiva.com/opinion-work-life/what-would-you-prefer;-a-cup-of-coffee-or-term-insurance/31788 .

Other products to invest for child education is gold or silver, which you can again invest in a smaller monthly mode as a part of overall financial planning and expect a decent return which is more than as offered on fixed instruments. You should start investing early say at the age when your child is say 2 or 3 years of age so that you get at least 15 to 18 years of sufficient time to invest more in equity market in a disciplined manner. And the moment a child reaches the age of 15, you should take money out of equities and shift it towards fixed instruments like FDs or debt funds so the gains which you have made till that time can be protected.

If at all if anyone had missed the bus and the child age is already say in the age group of 8 to 13 years then the time horizon you have is hardly 5 to 10 years respectively and in that case you should follow more balanced approach by investing 40-50% in equities or SIPs of Mutual funds and the remaining in debt. This also depends on the risk profile of every investors because debt funds typically gives a return of 8/9% but they have low risk as compared to a balanced approach of debt plus equity which offer better returns with slightly higher risk and returns in this approach can range between 9% to 15%. So depending upon how much time you have before you need funds for higher education, you can plan it accordingly and that is why it is very important to start at a very early stage itself.

How much should you save every month looking at the increasing education cost?

There are two ways to answer this question and one is to calculate the current education cost by increasing it by taking an inflation rate @8-10% but that may not give the right picture because if you look some 20 years down the memory line then who would have predicted the current scenario about the cost of education which is lying anywhere between Rs. 5 lakhs to Rs. 20 lakhs (from MBA to Medical fees) and not including the donation part wherever applicable. Earlier the same education was costing way cheaper than what it is now and similarly the future looks even tough in terms of education fees. So if we go by the current cost of say Rs. 10 lakhs as increased by 8% annually then we can at least assume it to be easily Rs. 80 lakhs in the next 30 years. One should then at least invest as low as even Rs. 1444/- per month assuming to be investing in a product which gives a return of 15% (say Mutual funds SIPs/equities) to generate a total corpus of Rs. 1 crore which serve the purpose. See the below table for understanding how Rs 1444/- per month invested in an equity SIP can generate Rs. 1 crore.

Desired wealth & amount to be invested per month
Target for years 5 lacs 10 lacs 20 lacs 50 lacs 1 crore

5 years 5645 11290 22580 56450 112899
10 years 1817 3633 7267 18167 36335
20 years 334 668 1336 3339 6679
30 years 72 144 289 722 1444/-

If you look at the table, it shows various amounts to be invested per month to achieve the desired target in a no. of years. The first row of Rs. 5 lacs to Rs. 1 crore tells us the targeted amount and the first column specify the no. of years you need to make these investments per month to achieve your target. And the second and the rows thereafter specify the amount you need to invest to achieve your target in different no. of years as mentioned.

For e.g. for getting a corpus of say Rs. 5 lacs in 5 years you need to invest at least Rs. 5645 per month but if you can invest for say 20 or 30 years then the amount that is needed to be invested is only Rs. 334/- or Rs 72/- per month, that is the power of compounding and the huge benefit of investing for a longer time horizon. Similarly for getting Rs. 1 crore say in 10 years, you have to invest Rs. 36335/- per month starting now but the same amount comes down to Rs. 6679/- per month if you are investing per month for 20 years and even comes down to a very low level of Rs. 1444/- per month only for a period of 30 years.

This shows the advantage of timely investment and can be greatly used for funding child education, the assumption as taken in the example is of a product which offers 15% returns like mutual funds SIPs but if we take a very conservative view and assume that the same returns cannot be guaranteed then even if one invest in say PPF which offers around 9% returns annually then also one can get Rs. 1 crore for sure by investing at least Rs. 2500 to 3000/- per month. The idea is not about which product but more about timely and consistency in making these investments which is the huge factor as no one invests it or thinks of investing it for so long. That is why I have used a very small amount to be invested per month which you can keep aside every month without even realizing it.

I am sure you might also be thinking that what is the value of Rs. 1 crore at the end of 30 years, but if you just calculate and converts in to present value it should still be huge in today’s time but the fact is that if with as low as Rs. 1444/- if you can get Rs. 1 crore then who stops us in investing little more and getting say Rs. 5 or 10 crores if that is what looks good to us. The key is to invest early, invest systematically for your children’s career. So once you come up with a proper laid down financial plan detailing the requirement for your children’s education funds, the same can be started immediately as suggested in the options mentioned above.

Each parent should take these investments very seriously and diligently after thorough research because after all it’s their children’s career and it cannot be compromised.