SSY: An attractive plan for girls, as long as you don’t mind being locked up | Personal Finance

An account can be opened for a girl under the age of 10. The account matures at the age of 21 from the end of the financial year in which it was opened.

Accounts can be opened for a maximum of two daughters (three if the second and third are twins). A maximum of Rs 1,50,000 can be invested per daughter in any financial year.

Attractive tax-free returns

The SSY offers the highest interest rate of all small business savings schemes. Moreover, the interest is tax-free. While the Senior Citizen Savings Scheme also offers 8.2 per cent, its interest is taxable. Currently, the SSY pays 1.1 percentage points (110 basis points) more than the Public Provident Fund (PPF), which offers 7.1 per cent.

SSY is free from market risks. “Since it is backed by the government, it is a virtually risk-free investment,” says Arvind A Rao, founder of Arvind Rao and Associates.

Its strict lock-in ensures that the money is saved for the girl’s education or her wedding. “This makes it ideal for investors who find it difficult to save for long-term goals,” says Rao.

Liquidity problems

The SSY allows early closure if the girl turns 18 and is getting married. Partial withdrawal is allowed after she turns 18 or completes 10th grade. However, partial withdrawals are limited to 50 per cent of the balance at the end of the previous financial year. “If more funds are needed for 12th grade or college education, this limit can be restrictive,” says Deepesh Raghaw, a registered investment adviser with the Securities and Exchange Board of India (Sebi).

Rao adds that those who are uncomfortable with prolonged confinement may find SSY less appealing.

While SSY’s 8.2 percent stake is attractive, the stock offers the potential for higher returns over the long term. “Historical data suggests that equity markets can deliver high double-digit returns for two decades or more,” says Rao.

Unlike the PPF, which allows an indefinite number of extensions in five-year blocks, the SSY must be closed after 21 years. “This flexibility makes the PPF attractive for long-term wealth accumulation,” says Raghaw.

Contributions to SSY can only be made for 15 of the 21 years of its tenure. “Also, the annual investment is restricted to Rs 150,000,” says Pandya.

Practical issues

SSY accounts can only be opened for female residents. The change of residence status must be notified to the bank or post office within one month. If this is not done, the account will be considered closed from the date of the change and no interest will be credited thereafter.

Closing the account before moving abroad can be a challenge as the account holder remains a resident. And once your residency status changes, it can be difficult to visit the branch to close the account. “If you are planning to move abroad soon, think twice before opening an SSY account or limit your contributions,” says Raghaw.

SSY vs PPF: A Detailed Comparison

Similarities

· Both enjoy EEA tax treatment (exempt-exempt-exempt)

· Both are long-term fixed-income products, both risk-free and backed by the government.

· Interest rates for both are adjusted quarterly by the government.

Differences

· The SSY can be opened to girls under 10 years of age, while the PPF is available to everyone.

· SSY offers a higher rate of 8.2 percent while PPF offers 7.1 percent.

· SSY matures in 21 years with no option to extend; PPF matures in 15 years but can be extended indefinitely in five-year blocks

Advice

· In a family of three (with one minor child), maximise investments to Rs 6 lakh by investing in both

First published: September 11, 2024 | 20:06 IS