In the last couple of years I have been actively part of the financial groups in Facebook and some related blogs, one aspect has always surprised me. Most people have an opinion on any aspect of personal finance which, while not bad by itself, becomes a negative when they have inadequate knowledge and furthermore try to influence others through it. I read a lot of comments on the SSY scheme, both for my post as well as in some of the Facebook groups where such a discussion took place. Instead of trying to address each one of those, I have decided to write this post.
The first objection is in terms of the duration of the scheme. Most people have a problem with the fact that it is for 21 years which is very long. My responses are as follows:-
- If you are doing this when your daughter is a new born or even in her first few years, the scheme is an ideal one. You will mostly need money for your daughter’s graduation, post graduation or her marriage.
- While each individual situation is unique graduation at the age of 18, post graduation at the age of 21/22 and marriage at an age of 25/26 should really be par for the course for most modern women.
- The scheme allows withdrawal of 50 % of the corpus at 18 years which can be used for the graduation related expenses.
- After passing 10th class up to 50% of the balance in the account in the preceding year can be withdrawn foe Education purposes. It is possible to do this one time or once a year. This is ideal for expenses related to 11th and 12th classes/coaching in addition to regular graduation expenses.
- The duration of 21 years actually ensures that you have the money when you need it.
- Even if theoretically,you cannot withdraw the money for her marriage if she gets married early, the money can be used later for some other purpose.
The second objection is on what are the terms and whether the amount garnered over the years will be significant. my responses are as follows:-
- The contributions for 14 years is a little strange but it does not really detract from the benefits of the scheme.
- If you put 1.5 lacs every year for 14 years then the amount after 21 years will be 80 lacs.
- Assuming you want to spend 10 lacs in your daughters marriage today and take inflation at 10 %, you will need about 74 lacs after 21 years.
- As mentioned before you can use 50 % of the account balance when she reaches the age of 18.
- Most importantly, the safety factor is unparalleled. MF returns can be good but if you have a year like 2008, 2011 or 2015 much of it can be wiped out.
The third objection centers around whether the terms of the scheme regarding interest rates and tax treatment can change. This is always a possibility and can never be ignored completely. However, with all the national focus on the girl child it will be very difficult for any government to make major changes in the scheme. It is far more likely that the LTCG exemption in equity can be withdrawn by some future government.
The fourth objection is that you have to keep running the account for 21 years, so this is not useful for people whose daughters are already more than 5 years old etc. This is simply not true in factual terms. You can close the account when your daughter gets married even if the duration is less than 21 years. However, unless this is the only source of your funds, keep the account running for as long as possible to get the EEE benefits.
Finally there is the SIP in MF brigade who see all solutions through only that avenue. As I have said many times earlier, comparing asset classes like debt and equity for investments make no sense at all. You need both and the right way to invest is in the 3 portfolios of debt, MF and stocks. SSY is the best debt instrument available today along with PPF. So, the issue is not whether you should do SSY or MF, you need to do both. Also, understand that though SSY is for the girl child, if you have met her goals through other means before the account matures, then the money can be used for any other purpose.
If you are having a daughter, this could be the best gift that you give her at 21. Whichever way she wants to use the money, she will appreciate your thoughtfulness and foresight.