There
are talks going on two investment options post budget due to tax benefit
available in the schemes. One is NPS and other is ''Sukanya Samridhi Scheme''.
NPS is given additional tax deduction of Rs. 50,000 under new section whereas
new scheme launched ''Sukanya Samridhi Scheme'' is included in the list of
investment options available to claim deduction u/s 80-C. I want to highlight
few points in the SSS so that an investor can take informed decision before
opening an account. Most of the experts have commented like that its one of the
best in the category; I beg to differ on this for the reasons laid down
hereunder. There is no doubt the scheme is good but it is not too good that
every investor must jump into it without understanding the pros and cons.
1) Limit under overall limit u/s 80-C
First
and most important is the scheme is included in the list of investment u/s 80-C
and there is no separate deduction available like in NPS or Rajiv Gandhi
Savings Scheme. Tax payers already have exposure to few of the investment like
EPF and life insurance plans and also might have outgoing in the form of home
loan or children’s education. So it is most likely that investors will
not benefit much from the scheme due to prior commitments.
2) The limit is for two girl child:
Again
the limit of Rs. 1.50 lakhs is not per child and it's for 2 girl child born
after Dec.02, 2003. So again if you have some pending amount of
investment for tax benefit you need to divide the amount amongst two daughters.
If Government is so serious about the Beti Bacho Beti Padhao, then they should
have given separate deduction by inserting new section and also limit should
have been given per child.
3) The rate is not assured for full term:
The
higher rate of interest of 9.10% is for the current financial year which is
likely to change every year. The rate of interest will be decided for each
financial year in the month of respective April month. The good part is that
interest is linked to 10 year GSec like PPF. The rate of 10 year Gsec at present
is around 8.70% currently and thus giving 0.40% higher in SSS but there is no
guarantee in future also this will remain high always. Secondly we are
witnessing lower inflation and most of the experts believe that repo rate will
fall further, so the chances of SSS return coming down is also higher.
4) Long lock in period:
The
scheme has long in period of 14 years means no withdrawal is allowed in first
14 years or till girl child reaches age of 18 years. Every investment has to be
assessed on three parameters - risk, reward and liquidity. The higher
rate of interest is possible because of long lock in period in the scheme.
Unlike PPF in which the withdrawal is allowed after 7th year you can’t touch
the money in SSS for 14 years if you open an account for girl child who is less
than 4 years. Tax payer has to keep in mind that higher rate of
interest of around 0.40% is given with additional 7years lock in period
which may be seriously looked into before investing in the scheme.
5) No deposit possible after 14 years.
The
scheme does not allow you to deposit once the first fourteen years are over
which is again a likely problem in future. The deposit is very much possible in
PPF after completion of first 15 years in a blog of 5 years. Today it may
be difficult for you to finalise the corpus for future needs but suppose you
need higher amount for your daughter’s wedding or higher education then you
have to find out other scheme whose interest is tax free and also beats
inflation which may not be easy at that time.
6) You need equity exposure for long term:
Asset
Allocation plays a major role in deciding your returns over a period of time.
Your portfolio returns more depends on asset allocation than investment
options. The Sukanya Samridhi Scheme is purely a debt scheme and the rate of
interest undoubtedly high compared to other fixed avenues. The return is also
tax free which also a good part of the scheme, but the scheme will not beat the
real inflation by margin. As a financial planner I always recommend taking
higher risk when your goal is very long term. The period of 14 years is
really a long term time horizon to take some extra risk to generate higher
return compared to fixed interest avenues. The average return on nifty in last
ten years is 15% p.a. and good performing equity mutual fund schemes have given
more 3 to 5% over nifty return.
You
will surprise to know the final figures of both at the end of 14 years if we
assume the return of 9.10% p.a. in SSS and 15% p.a in equity. If you deposit
Rs. 1.50lakhs every year in SSS @ 9.10% p.a. then you will be able to generate
corpus of around Rs. 40lakhs. If you take higher risk and invest the same
amount of Rs. 1.50lakhs yearly (preferably via monthly SIP) in equity scheme of
mutual fund @15% p.a. you will generate corpus of Rs. 60lakhs. The difference
is 50%. The returns are not guaranteed but by going the past performance it is
possible.
To
conclude the scheme is very good compared to traditional plans of life
insurance as life insurance products are likely to give half of SSS. It is very
much comparable with PPF and PPF has an edge because of liquidity and further
deposit after initial period is over. To me scheme is not good compared to
equity mutual fund schemes (ELSS scheme for tax purpose) looking at long term
time horizon. You have to be very careful before investing for tax planning as
every investment has its own merits and demerits. You need to finalise your
investment based on your risk profile and over all asset allocation.
Article first appeared at myiris.com on 26th March'2015
http://www.myiris.com/financial/storyShow.php?fileR=20150326095220199&secID=finan&secTitle=Financial&dir=2015/03/26
