Sukanya Samriddhi Yojana: Is investing in this scheme enough for your daughter's education?

With an interest rate (current) of 7.6% and the tax benefit, government-backed Sukanya Samriddhi Yojana is an excellent investment scheme. But when it comes to creating a corpus for your daughter’s education, is it enough?

“A lot of it depends on how much that particular person would need or want to save for the purpose,” said Renu Maheshwari, SEBI registered investment advisor, CEO, and principal advisor at Finzscholarz Wealth Managers LLP. She also added, “First, he/she needs to decide on the tenure of the investment, then, how much he/she would be putting in this, every year, etc.,”

For example, if your daughter is 3-years-old, and you want to invest 1.5 lakh yearly for the next 15 years, then at 7.6% interest rate, you would be able to create a corpus of 43.49 lakh.

This is quite a big sum in today’s terms, but if you want to send your daughter to an IVY league college 15 years down the line, the same would cover only a fraction of the cost, pointed out Maheshwari. Currently, college education in the US costs 50 to 60 lakh per year, and in 15 years time, they will run in crores.

Even if one is targeting Indian colleges, here is how they would cost 15 years later at 10% interest rate:

  • General courses: 5 lakh, would cost around 20 lakh
  • Engineering courses: 25 lakh, would cost around 1.04 crore
  • Medical course: 25 to 30 lakh, would cost around 1.04 crore to 1.25 lakh
  • Management courses: 40 lakh currently, and would cost 1.67 crore

So, whether the corpus is enough (or how much more she would need) would depend on whether the student would be pursuing a general course in an Indian University, an engineering/ medical/ MBA course or IVY league college etc.

“Now, the investor should start investing as per his/her lifestyle, income capacity and where he/she wants to send the child for education.”

The strategy to follow:

If someone is looking at Sukanya Samriddhi Yojana for his/her girl child’s education, Maheshwari said, the best way to do it is to first fill the whole thing, then get into the calculation of how much more money he/she need. Then the balance money should be invested in equity.

Tarun Birani, Founder & MD – TBNG, SEBI Registered Investment Advisor, Speaker, also admits that such is the best strategy to follow.

Noting that interest rates are quite high as compared to other debt instruments, he said, “Sukanya Samriddhi Yojana is definitely a great strategy for anybody who is looking at a predictable, safe corpus to be created.”

But, I would say one can do a mix of an equity plus debt strategy for such a long term goal, where Sukanya Samriddhi Yojana can be used as a debt instrument, he added.

“And since Sukanya Samriddhi Yojana is a very safe and a government backed scheme, hence one can look at a high risk equity oriented fund. Or may be an index oriented fund and this will balance out for a long period of time.”

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