Sukanya Samriddhi Account -When to invest to earn more returns?

Recently Government changed few rules of Sukanya Samriddhi Account, which will be applicable from 2016. The interesting part of it is the interest calculation method. I hope by following this rule you can earn more.

I have already written a detailed post on Sukanya Samriddhi Account. Let us discuss all the changes of Sukanya Samriddhi Account applicable from 2016.

# Adopted children eligible for Sukanya Samriddhi Account.

You can open the account in the name of adopted children. Earlier, this definition was missing. Hence, many felt it ambiguity to open the account in the name of adopted child or not.

# Child must be Resident Indian (NRIs not allowed) throughout the account period.

Your kid must be resident Indian at the beginning of account opening and as well as also throughout the period of account opening. The meaning of beneficiary of Sukanya Samriddhi Account is now defined as “an eligible girl child who is a resident Indian citizen at the time of opening of the account and remains so till the maturity or closure of the Account“.

# Interest declaration changed

Earlier the interest rate used to be declared yearly once. But now it is declared on a quarterly basis. I explained this change in my earlier post “Post Office Savings Schemes -Changes effective from 1st, April 2016“. Interest rate for Sukanya Samriddhi Account for a period of 1st April, 2016 to 30th June, 2016 is 8.6%.

# Term of Deposit changed

Earlier deposit in Sukanya Samriddhi Account will be allowed up to the 14 years of age of girl child. Now it is increased to 15 years. So you are allowed to invest one more year.

# Penalty clause of inactive accounts defined.

The minimum deposit in a year is Rs.1,000. If you fail to deposit this in any year, then the account is considered as a default account. You have to pay Rs.50 as a penalty and the each such year’s minimum deposit amount to revise it.

Now if you will not renew such default account, then the whole deposit amount (including the deposits already made prior to default), will earn the interest rate of  Post Office Savings Bank but not SSA (Sukanya Samriddhi Account) interest rate.

If you received SSA account during this default period, will be reverted back. However, such default rule not apply to the accounts defaulted due to death of guardian.

# What if you invest more than Rs.1.5 lakh a year?

Earlier there was not clarity on what if one deposit more than Rs.1.5 lakh. Now it is clear that if you deposit more than Rs.1.5 lakh a year, then such amount will not be eligible for interest. You are allowed to withdraw this amount at any point of time before closure of an account.

# Now you can deposit ONLINE

Earlier invest in this scheme was through Cash, Cheque or DD. Now if your post office or bank is CBS (Core Banking System) platform, then you can deposit online.

# When you must inform if your residential status changes to NRI?

Earlier there was no clarity on this procedure. Now you have to inform to Post Office or Bank within 1 month of such change. Also, you will not get any interest during this period on your SSA.

# Duplicate Passbook is now available with payment of Rs.50.

Earlier this option was not provided. Now with the written request from either account holder or guardian, you can get a duplicate passbook by paying Rs.50 as a penalty.

# Transfer of Account is EASY

Earlier you are allowed to transfer from one post office to another post office or bank and between post office to bank only when your kid relocates to the new place.

Now you can do such transfer if the guardian or kid relocate to a new place. You have to provide the address proof of such new location.

If you will not have any such address proof, then by simply paying Rs.100 you can change the account anywhere in India without providing the address proof.

# Withdrawal eligibility changed

Earlier up to the maximum of 50% of the balance at the end of a previous financial year will be eligible to withdraw for higher education purpose. The age was set as 18 years.

Now along with age restriction, education qualification is a criteria. Now one can withdraw the amount either kid attains the age of 18 years or has passed 10th standard, whichever is earlier.

For such educational withdrawal, you must submit the proof of admission. Proof in a way of confirmed offer of admission of the Account holder in an educational institution or a fee-slip from such institution clarifying such financial requirement.

You are allowed to withdraw in a single lump sum or only once in a year up to 5 years for such educational need.

# Account closure conditions changed

We all know that this account is for the period of 21 years. However, if the girl is going to marry then you can close this account after her age of 18 years.

However, earlier there was no such restriction like exactly when during marriage time the account MUST be closed. Now they specified the time period.

You are allowed to close the account if you daughter is 18 years old and going to marry. But such withdrawal is only one month before the marriage or after three months from the date of marriage.

This means, even though you applied for closure of account due to your daughter’s marriage (after she more than 18 years of age), you can close it just before one month of marriage or after 3 months of marriage.

Also, now the submission of age proof for such closure is mandatory.

# Interest payment once the account completes 21 years

Earlier there was no clarity like what if you keep the account alive even after 21 years. Now they cleared the dust. You will not earn any interest if you not close the account after 21 years. It will be idle as long as you close it.

When to invest in Sukanya Samriddhi Account to earn more?

Above said changes are related to basic features of Sukanya Samriddhi Account. But this post is meant for how we can earn more by investing wisely Sukanya Samriddhi Account.

Earlier Government plainly said that interest will be declared annually and it will be compounding on annual base.

Now the cleared the doubt of how the interest is calculated. It is exactly like Public Provident Fund (PPF) interest calculation method. The only change is date of the months.

The Government now clarified by saying “The interest shall be calculated for the calendar month on the lowest balance in an Account on the deposits made between the close of the tenth day and the end of the month“.

This means, if you want your invested money to earn the interest from that month itself, then you must deposit in Sukany Samriddhi Account within 10th of every month.

Let us say for the month of May, 2016 beginning your account balance is Rs.2 lakh. Then if you deposit Rs.10,000 into SSA account before 10th, then the balance of that month will be Rs.2,10,000. The interest will be on this Rs.2,10,000 for that particular month.

However, let us say you deposited Rs.10,000 after 10th. Then during this period, the MINIMUM balance will be Rs.2,00,000 but not Rs.2,10,000. So Rs.10,000 whatever you deposit in the month of May, 2016 will not be eligible to earn interest. It will be idle for a month. It will start to earn the interest from next month.

I will show you with an illustration that how you can maximize your returns by simply following the above condition of interest calculation.

Suppose Mr.X and Mr.Y opened SSA account on the same day and started to contribute Rs.8,000 each month but Mr.X is contributing before 10th and Mr.Y is contributing after 10th of each month then how much difference we can see.

Mr.X’s Accumulation after 21 years.

First Year Contribution is Rs.8000 PM.

1st Month Contribution-8,000+688 (interest for 12 months) =8688

2nd month Contribution-8,000+631 (Interest for 11 months) =8631 and so on…

Like this at the end of 1st year Principal is (8000*12) + (4472) =1,00,472. The same amount will be his contribution for the remaining 14 years. So, at the end of the 15th year, his accumulated amount is Rs.28,58,835. However, the account matures after 21 years. Therefore at 21st year, the maturity amount will be Rs.46,89,948

Mr.Y’s Accumulation after 15 years.

First Year Contribution is Rs.8000 PM. (But after 5th of each month)

1st Month Contribution-8,000+630 (Interest for 11 Months) =8630

2nd Month Contribution-8,000+573 (Interest for 10 Months) =8,573 and so on..

Like this at the end of 1st year Principal is (8000*12) + (3,784) =99,784. The same amount will be his contribution for the remaining 14 years. So, at the end of the 15th year, his accumulated amount is Rs.28,39,259. However, the account matures after 21 years. Therefore, at the 21st year, the maturity amount will be Rs.46,57,833.

The difference of returns between Mr.X and Mr.Y is-Rs.32,115.

This is how the difference of one-year investment looks for you. 

It may be a small amount. But what I am trying to point is by investing every month before 10th or in case of lump sum in a one shot before 10th of April every year, you can maximize to a certain extent.

Hope you understood of what I am trying to say.