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Sukanya Samriddhi Account vs Recurring Deposits

 

Few of our readers are questioning on why to go with Sukanya Samriddhi Yojana and lock amount for so long when we have Recurring Deposits and other investment avenues like PPF. I have already compared Sukanya Samriddhi Yojana with Public Provident Fund here.

 

Comparing Recurring Deposits with Sukanya Samriddhi Deposits is not fair because one is specifically for the betterment of the Girl Child future and other is for general short term purpose. Although both are good investment avenues but if we see from the tax point of view than Sukanya Samriddhi Scheme scores above Recurring Deposits but seeing from the liquidity point of view than Recurring Deposits offers for the tenure as low as of 6 months which is far shorter than the tenure of 21 years of Sukanya Samriddhi Account.

 

Lets, look at the major differences between both of the investment avenues.

How Sukanya Samriddhi Yojana is better than Recurring Deposits?

Parameters

Sukanya Samriddhi Yojana

Recurring Deposits

EligibilityFor the Girl Child aged 10 years or below but no NRI.For any person (minor with guardian) including NRI.
Where to OpenPost Offices and BanksPost Offices and Banks but NRI can only open RD account in Banks.
Number of AccountsOne Account per Girl ChildNo Limit
PurposeFor Girl Child Higher Education and MarriageFor short term goals like buying car, children hostel fees or even for buying expensive LCD
NatureLong-Term Debt SchemeShort-Term Debt Scheme
Minimum InvestmentRs.1,000 per yearRs.100 per month
Maximum InvestmentRs.1.50 lakhsNo limit
Penalty for default in paying contributionRs.50 per yearRs.1.50 to Rs.2 for every Rs.100 per month
Minimum TenureFixed Tenure of 21 years.6 months
Maximum Tenure10 years
Interest Rate9.20% p.a.8.40% p.a. for 1 to 5 years RD.
Interest CalculationCompounded YearlyCompounded Quarterly
Tax Benefits on DepositsDeductible u/s 80C of Income TaxNot Deductible u/s 80C
Tax Benefits on InterestTax-FreeWill be taxed under the head of other incomes.If account belongs to minor then deduction of Rs.1,500 from the total interest u/s 10(32) can be claimed.
Tax Benefits on Maturity AmountTax-FreeFully Taxable with no exemption.
LoansNo loan can be taken on the SSA balanceUp to 90% of the available balance
TDS ApplicabilityNo TDS is to be deducted from the Interest Income.TDS is to be deducted from the Interest Income.
Premature WithdrawalNot allowed.1% penalty
Maturity CalculatorSukanya Samridhhi CalculatorRD Calculator
 

Note:

  1. SBI Interest Rates are taken for reference for Recurring Deposits.
  2. Interest Rate of Recurring Deposits may vary from bank to bank and according to tenure of the deposits.
  3. Recurring Deposits for minor below may be opened as a joint account with the guardian but minor of 10 years or above can open recurring deposits for himself/herself by showing birth certificate. (Source: PNB)

Final Words

I strongly advocate on having sukanya samriddhi account for every girl child because with the magic of compounding, a small amount of Rs.1,000 per year will become a hefty amount at the time of maturity and with no premature withdrawal, the aim of instituting the sukanya samriddhi scheme will be fulfilled.

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