Why Sukanya Samriddhi May not be enough for your Daughter’s future?

As an Indian parent, one of the most important goals is to secure your child’s future. And at times, people end up compromising retirement savings to fund children’s education.

In view of the importance that people give to children’s future, more specifically for girl child, the government in 2015 had launched a special girl-child-oriented scheme named Sukanya Samriddhi Yojana to encourage saving for her future and welfare.

And to be fair, Sukanya Samriddhi Yojana is a popular savings option among those with young daughters given its EEE taxation status and reasonably solid 8% returns. But while this may sound tempting at first, there are a few things that need to be understood.

I know that when I say that Sukanya Samriddhi Yojana may not be enough for your daughter, then that’s a strong statement.

So let me explain.

Sukanya Samriddhi may Not be Enough

As per the rules, the Sukanya account matures in 21 years of account opening. Some parents confuse themselves that the account maturity happens when the girl turns 21. But that’s not correct. Maturity happens after completion of 21 years of account opening (irrespective of the age of girl child at the time of opening). Also, you are allowed to make investment contributions only for the first 15 years and not the full 21 years. And the maximum allowed investment is Rs 1.5 lakh per year.

Suppose that on your daughter’s 5th birthday, you realized that it is high time that you begin saving properly for her future. And you opened a Sukanya account at the age 5 and then plan to invest a maximum Rs 1.5 lakh each year for the next 15 years.

Now when your daughter turns 18, you need funds to pay for her graduation.

At that time, the Sukanya account would have completed about 13-14 years.

Assuming an average 8% return*, if you use a Sukanya Samriddhi Maturity Calculator, you will find that the total corpus accumulated till then would be about Rs 39 lakh. But you cannot use the full amount even if you want it or need it.

* – Check latest Sukanya Samriddhi Interest Rates

Yes, that does seem unfair but as per the rules, you are only allowed to withdraw up to 50% of this corpus for her higher education.

So, the amount available to cover higher education expenses is only half of the corpus, i.e., about Rs 19-20 lakh.

Now will this be enough after 13-14 years?

Mostly not? Why? A good professional course in India (like engineering, management, medical, etc.) will easily cost about Rs 20-25 lakh even today. And if you inflate this figure for the next 13-14 years’ worth of inflation, the amount required will very easily be Rs 70-80 lakh if not more.

So your Sukanya allowing you to withdraw (as per our example) just Rs 19-20 lakh will never be enough.

Did you now realize why even after tax-free 8% returns, Sukanya may not be able to fully fund your daughter’s higher education needs in future?

Equity should Complement Sukanya

If your daughter is still young and you still have 12-15 years before her higher education begins, then you need to invest some money in equities.

As a thumb rule, for such long investment horizons, one should always have some allocation to equities (via SIPs) as they have proven to give inflation-beating 10-12% average returns in the long term.

And mind you, educational inflation is a lot more than your regular day-to-day household inflation.

Allocation between Equity Funds & Sukanya Scheme?

Assuming your daughter is young with 12+ years before graduation, your risk profile will decide how much should be allocated to either instrument –

  • Aggressive – Put 70-75% in equity funds and the rest 25-30% in Sukanya account
  • Balanced – Put 45-55% each in equity funds as well as Sukanya account
  • Conservative – Put about 20-30% in equity and 70-78% in Sukanya
  • Ultra Conservative – You will not listen to me and hence, you will anyways put 100% in Sukanya and other safe debt products.

While SSY is an excellent fixed-income option, you shouldn’t rely solely on it for your daughter’s future. It is a decent product but treat investments in Sukanya as a debt part of your portfolio. And make sure you complement it with regular SIPs in equity funds to ensure that you don’t face a fund crunch when your daughter needs it the most at the time of higher studies.

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