Invest for its high, tax-free return with zero credit risk

Parents of a girl child who do not mind the long lock-in should go for it

- SILKANYA SAMRIDDHI YOJANA SANJAY KUMAR SINGH

The government recently raised the interest rate on the Sukanya Samriddhi Yojana (SSY) to 8.2 per cent. Along with the Senior Citizens Savings Scheme (SCSS), it now offers the highest return among all small savings instruments.

High return, no credit risk

SSY's return of 8.2 per cent is tax-free. SCSS pays a similar rate but it is taxable. "An instrument would have to offer a return of almost 12 per cent to generate an 8.2 per cent post-tax return for an individual in the 30 per cent tax bracket," says Deepesh Raghaw, a Securities and Exchange Board of India (Sebi) registered investment advisor (RIA). While the return from Public Provident Fund (PPF) is also tax-free, it is lower at 7.1 per cent.

Being government-backed, SSY carries no credit risk. Investors get a tax benefit at entry.

"You can avail of a tax deduction of up to ₹1.5 lakh under Section 80C," says Anil Rego, founder and chief executive officer, Right Horizons.

The product's limited liquidity can be beneficial.