Q. My daughter will turn four this July. I would like to start saving for her, mainly towards her higher education and security. What are the best options available? Was thinking about the Sukanya Samridhi Yojana but was told the interest rates wouldn’t be high as today, since it depends on the government.
Shirin N.
A. The Sukanya Samriddhi Yojana is a good option and is better than bank fixed deposits. But it should not be the only option you rely on for your daughter’s education goal. The key positive of the Sukanya Samridhhi Yojana is that it is a government-guaranteed scheme, making it absolutely safe. Both your initial investment in the scheme (of up to ₹1.5 lakh a year) and your final withdrawal amount, including returns are tax-free. As this scheme has been part of its Beti Bachao, Beti Padhao initiative, the NDA Government has also been announcing relatively high interest rates on it, compared to other post office schemes. For the current quarter, the interest rate on the scheme is at 8.5%per cent, with the tax-free returns making it one of the most attractive fixed income options in the market.
However, the scheme does have its minuses. One, it locks in your money until your daughter turns 18 or 21 years of age (withdrawal is allowed only in the case of marriage at 18, or alternatively for education at 21) and you will need to sustain your contributions for 15 years. Two, the interest rate on this scheme is changed at the beginning of every quarter by the central government. Generally, new interest rates are announced based on the prevailing rates on government securities.
So, if the interest rates on government securities fall sharply over time, you should expect the returns on this scheme to fall too. A new government, which doesn’t prioritise this scheme like the current one, can also prune its interest rates. You need to budget for the fact that education expenses in India often rise much faster than the normal inflation rates. Equity mutual funds give you the best shot at inflation-beating returns in the long run. So, given that you have more than 14 years to go before you need this money, you can consider starting SIPs in two multi-cap mutual funds towards your daughter’s education too.
