In one of my earlier posts on debt investments, I had suggested that every parent with a girl child below 10 years of age should open a SSY account. Since then many people have asked me as to why I have suggested this as opposed to Mutual fund plans, PPF etc. Now, even though the answer is fairly obvious, let me try to address it.
If you are a parent of any child, irrespective of the gender, there are future financial goals associated with their college/higher education as well as marriage. Fortunately we have come to an age, at least in many parts of our country, where the discrimination related to higher education of women is a thing of the past. As long as our daughters are capable, we would like to give them the best of education. Marriage is a different issue and my own thoughts are that children should get settled in their career and choose who they want to marry. However, in terms of a financial perspective a daughter’s marriage is very likely to cost more than that of a son.
Given this backdrop, you are certain to need a fair amount of money for her college at about 18 and post graduation at about 21. My own thoughts are women should not get married before they have embarked on a career and I think 25 is the right age for it. Now the point is that these expenses are fairly certain and you need to plan for these in advance, as you hardly know what your daughter may want to do. I can already see many of you saying, ” All that is known but why SSY?”
The first thing in favor of SSY is the certainty of returns as well as the tax treatment. Having launched the scheme with defined objectives, the government will find it very tough to reduce rates in any significant manner. Obviously in the current interest rate regime, I do not expect it to be at 9.2 % but it will definitely be higher than PPF and some of the other schemes run by the government. More importantly, the tax treatment is likely to be EEE for the same reason – politically it will be impossible to change.
So here is what I think every parent having a daughter younger than 10 years should do:-
- Open a SSY account for your daughter today, if you have not already done so.
- Contribute the maximum amount to it every year, irrespective of whether you need it as 80 C deduction or not.
- Have your 3 portfolio strategy as explained elsewhere in this blog. SSY like PPF and PF is part of your debt portfolio. The other two are stock and MF portfolio.
- When you need the money for a goal, look to equity first. If equity markets are not doing well use the SSY money. Remember you can first take money out when your daughter is 18.
- The term of SSY is 21 years and you can either terminate it then or later. The contribution is up to 21 years.
- The final amount can be used for her post graduation or marriage.
It is a pity that such a product was not there when my daughter was born or when she was younger than 10 years. I would have definitely invested in it. Those of you who can must do so – it is the surest way of securing your daughter’s future.