Month: March 2015

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Sukanya Samriddhi Yojana has received a great initial response from the general public. As the scheme offers 9.1% tax-free rate of interest, investors are finding this scheme to be extremely attractive and want to invest in it as soon as possible. They also need handholding to invest in this scheme. But, due to lack of required information with the post offices and authorised bank branches, people are finding it difficult to do so.

I have posted two articles about this scheme and both have received over hundred comments from the visitors. I have been getting many queries regarding the maturity value of this scheme. People want to know the value of their investment as the scheme gets matured after 21 years.

Though it is almost impossible to calculate a precise maturity value of this scheme as there are many variables on which its maturity value will depend, I have tried to make a couple of tables in which the maturity value has been calculated keeping those variables to be constant and yearly & monthly contribution to be the only variable.

Certain assumptions have been made for calculating these maturity values and those assumptions are:

* Rate of Interest has been assumed to be 9.1% for all these 21 years.

* Yearly contributions have been assumed to be made on April 1 every year i.e. the beginning of the financial year.

* Monthly contributions have been assumed to be made on 1st day of every month.

* Although it is not mandatory, a fixed amount of yearly/monthly contribution has been assumed.

* It is also assumed that no withdrawal is made throughout these 21 years.

Here you have the tables:

Yearly Contribution Table

Monthly Contribution Table

I hope these two tables help people in deciding how much amount they would like to contribute to this scheme in order to achieve their girl child’s marriage and/or higher education goals.

Before you go ahead and plan to get an account opened, I would like to again highlight the main features of this scheme:

Who can open this account? – Parents or a legal guardian of a girl child up to the age of 10 years, can open this account in the name of the girl child. Up to December 1, 2015, one year grace period has been provided to allow this account to get opened for a girl child who is born on or after December 2, 2003.

9.1% Tax-Free Rate of Interest – This scheme offers 9.1% rate of interest, which has also been exempted from tax in this year’s budget. But, this rate is not fixed at 9.1% for the whole tenure and is subject to a revision every financial year.

Scheme Matures in 21 years or on Girl’s Marriage, whichever is earlier – The scheme gets matured on completion of 21 years from the date of opening of the account or as the girl child gets married, whichever is earlier. Please note that the girl attaining the age of 21 years has no relevance to maturity of this scheme.

Deposit for 14 years only – You need to deposit a minimum of Rs. 1,000 and a maximum of Rs. 1,50,000 only for the first 14 years, after which you are not required to deposit any amount. Your account will keep earning the applicable interest rate for the remaining 7 years or till it gets matured on your daughter’s marriage.

Documents Required – You need birth certificate of the girl child, along with the identity proof and residence proof of the guardian, to open an account under this scheme. You can approach any post office or authorised branches of some of the commercial banks to get this account opened.

You can check the rest of the features of this scheme from this post – Sukanya Samriddhi Yojana – Tax-Free Small Savings Scheme for a Girl Child

You can also download the application form to open an account from this post – Sukanya Samriddhi Yojana – Application Form & List of Banks to Open an Account. If you still have any query or something related to discuss, please share it here.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Government of India in Budget 2014 announced the revival of Varishtha Pension Bima Yojana (VPBY) with the objective of providing social security to the senior citizens of this country. It is a Government subsidised single premium pension scheme with an assured effective return of 9% to 9.38% per annum. To ensure investors’ trust and complete safety of their investments, LIC of India was given the sole privilege to operate this scheme.

Relaunched in August 2014, the government had high hopes out of this scheme and it has been encouraging LIC’s top management to promote this scheme aggressively. However, this scheme has not received the desired response from the general public as it was anticipated. So, why this scheme has not been received well by the market despite offering high guaranteed returns of 9% to 9.38%?

I think there are several reasons for that, one, the pension income is taxable, two, there is no life cover with this scheme, and three, its effective rate of return is actually below the promised rate of 9% to 9.38%. There might be other reasons also for such a muted response, but I think these three are the most important ones.

To give this scheme one more budgetary support, the Finance Minister Mr. Arun Jaitley has made Varishtha Pension Bima Yojana to be exempt from Service Tax. This scheme has been attracting a service tax of 3.09% so far and the investors have been paying this tax over and above their investment amount. Come next financial year, this scheme will not attract service tax anymore.

How is it going to benefit its investors aged 60 years or more? Which date will it be effective from? Will it be retrospective from its launch date or will it be a prospective implementation? Before we explore all that, let us first try to understand the salient features of this scheme.

Rate of Return – This scheme promises to generate a return of 9% to 9.38% for its investors on an immediate annuity basis. However, due to 3.09% service tax, the effective rate of return has been lower. As per my calculation, its effective rate of return lies between 8.73% and 9.1% so far. But, once the service tax exemption gets implemented, 9% to 9.38% would become its effective rate of return.

Minimum/Maximum Pension – Pension is paid on an immediate annuity basis in monthly, quarterly, half-yearly or annual mode, varying, respectively, between Rs. 500 to 5000 (monthly), Rs. 1500 to 15,000 (quarterly), Rs. 3000 to Rs. 30,000 (half-yearly) and from Rs. 6,000 to Rs. 60,000 (annually), depending on the amount subscribed and the option exercised.

Minimum Investment – You need to invest a minimum of Rs. 63,960 to get Rs. 6,000 annual pension or Rs. 65,430 to get Rs. 3,000 semi-annual pension or Rs. 66,170 to get Rs. 1,500 quarterly pension or Rs. 66,665 to get Rs. 500 monthly pension. In a way, you may also decide how much pension you need every month and then invest an amount as per your pension requirement.

Maximum Investment – You can invest a maximum of Rs. 6,66,665 in this scheme to get Rs. 5,000 monthly pension or Rs. 6,39,610 to get Rs. 60,000 annually. 

Ceiling of maximum pension amounts apply to a whole family, including the pensioner, his/her spouse and dependants. So, two or more senior members of a family can invest in this scheme, but their total investment amount cannot exceed the limits specified.

Age Limit – Minimum age limit has been set as 60 years and there is no maximum age limit to invest in this scheme.

Nationality – Only Indian nationals are allowed to invest in this scheme.

Scheme Period – This scheme got launched on August 15, 2014 and will remain open for one year till August 15, 2015.

No 80C or 10(10D) tax benefits – Investment under this scheme does not qualify for any tax deduction under section 80C or 80CCD. Moreover, the pension income is taxable as per the tax slab of the pensioner.

Free Look Period – If you are not satisfied with the terms and conditions of this scheme, you may ask for a refund of your investment amount within 15 days from the date of receipt of the policy stating the reason of objections. The amount to be refunded within free look period will be the investment amount deposited by the investor less the stamp duty charges.

Premature Surrender – The policy can be surrendered after completion of 15 years. The investor will get the investment amount in full as the surrender value after 15 years. However, under exceptional circumstances, if the pensioner requires money for the treatment of any critical/terminal illness of self or spouse, then the policy can be surrendered before the completion of 15 years and the surrender value payable will be 98% of the investment amount.

Unfortunate Event – On death of the pensioner, the investment amount will be refunded in full to the nominee of the pensioner. However, as only the invested amount is refunded, there is no special insurance benefit available with this scheme.

Loan Facility – Loan facility is available after completion of 3 policy years. The maximum loan that can be granted shall be 75% of the investment amount. The rate of interest to be charged for the loan amount would be determined from time to time by LIC.

Loan interest will be recovered from pension amount payable under the policy. The interest on loan will accrue as per the frequency of pension payment under the policy and it will be due on the due date of pension. However, the loan outstanding will be recovered from the claim proceeds at the time of exit.

Service Tax Exemption on VPBY Effective April 1, 2015

So, now the question arises, whether service tax exemption be retrospective from its launch date or will it be a prospective implementation? What I understand from the info available publicly, it will be effective April 1, 2015. If it is correct, what about all those investors who have invested in this scheme till date? I think they will definitely stand disappointed and rightly so. I think they should also be provided such benefit right from their date of investment. The government should once again think about it.

As far as investment in this scheme is concerned, I think service tax exemption has made this scheme a little more attractive as compared to fixed deposits or other small saving schemes. You can consider this scheme if you want a super safe investment avenue with reasonably high returns for yourself.

As the Sensex sailed past 30,000 today I was amazed to note the absence of volatility in the market in the last few years.

The market has marched steadily upwards in the last five years or so and these days are quite reminiscent of the pre 2008 crash market days where you used to meet a lot of people who had never experienced the pain of a market crash in their life, and believed in the inevitability of the market always going up.

I was reminded of this because I read Warren Buffett’s letter to shareholders last Sunday, and although nothing new, he did emphasize the same important things he has been saying for a very long time now.

Here’s a small snippet from the report:

Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions. That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray.

No one is talking about volatility or risk these days because we have not experienced that in the recent past. Whether or not we experience it in the near future is anybody’s guess but the main thing is to have a plan of action when you do experience that volatility, specially with the Nifty P/E around 24 which is at the higher end of the scale.

The important thing is not to mistake the volatility for risk when you are faced with it. If you plan to hold stocks for very long periods of time like a decade or till your retirement then they are very safe options as we have seen over the past 25 years or so since India’s liberalization. We have had a lot of ups and downs, pretty severe recessions, busts, terrible governance, and still the market has been smiling to people who have been patient with it.

That’s the key lesson to remember and although you may not need to put it to use right away, you will need to put it to use sooner or later.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

It has been over a month now since the government launched the “Sukanya Samriddhi Yojana” on January 22nd. But, no authorised public sector bank has the details or the application form of this scheme till date to help investors open an account. Even the post offices are not providing the application form or the details of the scheme easily.

On behalf of the general public, I would like to ask the government why do we announce such schemes when we do not have the basic infrastructure to help those for whom these schemes are being launched? I know I’ll not get any reply, but I really want to know when will our governments or public sector offices start working in an efficient manner?

Why don’t we privatise our post offices, banks or such other public sector organisations which have been operating highly inefficiently for years and years now? If we cannot privatise these organisations due to political compulsions, why don’t we make them improve their efficiency levels?

Yesterday I posted various salient features of this scheme and today I received a few emails asking for the list of banks where this account can be opened. I also got queries asking for the application form to open an account. Here is the extract of one such mail.

Hello Mr. Kukreja,

I just read your article and your views over Pradhanmantri Sukanya Samriddhi Yojana. It was fabulous to read. Very clear and understanding information.

Actually i need a help or say favour from you. Am trying to get the Account Opening Form of above said scheme, but i didnt find any. Could you pls mail me the form of the same, so that without wasting any time i can proceed with the investment.

If you say that, collect from the post at nearby my residence, well sir i have inquired but they have none.

So its a kind request to you.

Overall thanks once again for your information and guidance.

Application Form for opening a Sukanya Samriddhi Account in a Post Office

To open an account under this scheme, the application form is still not available on the website of India Post. However, you can use this application form for getting your account opened with any of the post offices. I have downloaded this form from the website of India Post itself. Though this application form is still not updated, with ‘SSA’ missing on the top of this form, I have been told that the post offices will not refuse to accept this form.

However, here is one more link to the application form with which you can download the updated application form.

You can also print the application form from this circular of the Department of Posts, Ministry of Communications & IT, dated January 21, 2015. This circular also has the Notification No. G.S.R. 863(E) dated December 2, 2014, having all the rules & regulations of Sukanya Samriddhi Yojana. This circular has the application form on the 9th page.

List of Banks which have been authorised to open Sukanya Samriddhi Account

Here is the list of scheduled commercial banks which have been authorised to open accounts under Sukanya Samriddhi Yojana:

* State Bank of India (SBI)

* Bank of Baroda (BoB)

* Punjab National Bank (PNB) – Website Link – Contact No. – 011-25744370

* Bank of India (BoI)

* Canara Bank

* UCO Bank

* United Bank of India

* Andhra Bank

* Allahabad Bank

* Indian Bank

* Corporation Bank

* Central Bank of India

* IDBI Bank

* Dena Bank 

Once these banks upload the application form on their respective websites, I’ll share the links to their forms in front of their names.

I am sure many of you must be facing difficulties in getting the required information about this scheme and also you would be in a hurry to open this account before the financial year ends. I would advise you to approach post offices as of now because some of the banks will take their own sweet time to get their branch personnel updated. I am sure you will get the option to migrate to the bank of your choice at a later date.

If you get any useful info/link regarding this scheme or have any of your good/bad experiences or any query, please share it all here.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

“Beti Bachao, Beti Padhao” is the mantra with which Prime Minister Narendra Modi launched Sukanya Samriddhi Yojana on January 22nd this year. Later on, the government issued a notification to allow 80C exemption equal to the amount invested in the scheme up to Rs. 1,50,000, which is also the maximum amount one can invest in this scheme in a financial year.

Now, the Finance Minister in his budget speech has proposed to make the interest component as well as the maturity proceeds as tax-free. I think this proposal has made this scheme to be the best small savings scheme available to the Indian investors. Yes, even better than our golden scheme of Public Provident Fund (PPF). So, what is this scheme all about? Let’s check.

Sukanya Samriddhi Yojana is a small savings scheme which can be opened by the parents or a legal guardian of a girl child in any post office or authorised branches of some of the commercial banks. The girl child is called the “Account Holder” and the guardian is called the “Depositor” in this scheme.

Before I compare this scheme with PPF, let us first check the important features of this scheme.

Salient Features of Sukanya Samriddhi Yojana

Who can open this account? – Parents or a legal guardian of a girl child who is 10 years of age or younger than that, can open this account in the name of the child. For initial operations of the scheme, one year grace period has been provided to make it 11 years of age. With this one year grace period in age, which is valid up to December 1, 2015, you can get this account opened for a girl child who is born between December 2, 2003 and December 1, 2004.

9.1% Tax-Free Rate of Interest – This scheme has been flagged off with a 9.1% rate of interest, higher than that of PPF which stands at 8.7%. But, this rate is not fixed at 9.1% for the whole tenure and is subject to a revision every financial year like all other small savings schemes, including PPF.

Prior to the budget announcement, 9.1% annual return seemed unattractive, but not anymore, as it has been made tax exempt now. Interest amount gets added to your balance amount in the account and compounded either monthly or annually, as per your choice. Monthly interest compounding will be done only on your balance amount on completed thousands.

Duration of the Scheme – The scheme will mature on completion of 21 years from the date of opening of the account. If the account is not closed on maturity after 21 years, the balance amount will continue to earn interest as specified for the scheme every year. In case the marriage of your daughter takes place before the maturity date i.e. completion of 21 years, the operation of this account will not be permitted beyond the date of her marriage and no interest will be payable beyond the date of marriage.

Deposit for 14 years only – Though the scheme has a duration of 21 years, you are required to make contributions only for the first 14 years, after which you need not deposit any further amount and your account will keep earning the interest rate applicable for the remaining 7 years.  

Premature Closure – The account can also be closed prematurely as your daughter completes 18 years of age provided she gets married before the withdrawal. As the maximum permissible age of the girl child is set as 10 years, the scheme effectively carries a minimum duration of 8 years i.e. 18 years of exit age – 10 years of entry age.

Partial Withdrawal – It is also allowed to withdraw 50% of the balance standing at the end of the preceding financial year, but only after your daughter attains the age of 18 years. So, effectively it has a complete lock-in period of at least 8 years, before which you cannot take out any money for any purposes.

Minimum/Maximum Investment – You need to deposit a minimum of Rs. 1,000 in a financial year to keep your account active. Failure to do so will make your account inactive and it could be revived only after paying a penalty of Rs. 50 along with the minimum amount required to be deposited for that year, which currently stands at Rs. 1,000.

Also, you can invest a maximum of up to Rs. 1,50,000 in a financial year. You can make your contribution to this account in as many number of times as you like.

How many accounts can be opened? – You can open only one account in the name of one girl child and a maximum of two accounts in the name of two different children. However, you can open three accounts if you are blessed with twin girls on the second occasion or if the first birth itself results into three girl children.

Nomination Facility – Nomination facility is not available in this scheme. In an unfortunate event of the death of the girl child, the account will be closed immediately and the balance will be paid to the guardian of the account holder.

Documents Required – Birth Certificate of the girl child, along with the identity proof and residence proof of the guardian, are the mandatory documents required to open an account under this scheme. You can approach any post office or authorised branches of some of the commercial banks to get this account opened.

Sukanya Samriddhi Yojana vs. Public Provident Fund (PPF)

Budget 2015 has made this scheme quite attractive for the investors. If you’ve already exhausted your PPF deposit limit, want to save for your girl child’s marriage or higher education and have spare money to invest in this scheme, then this scheme provides you one more excellent avenue of safe investment with high returns. You can wait for the next financial year’s rate of interest to get announced anytime this month, if it remains higher than PPF, just go for it.

Application Form to open a Sukanya Samriddhi Account

List of authorised commercial banks where you can get this account opened