Personal Finance

Showing posts with label fixed income. Show all posts

Thursday, 11 January 2018

7.75% Government of India Savings Bonds

Government of India has decided to issue 7.75% bond starting January 10, 2018, notice for the same was issued on January 3, 2018.

These 7.75% GOI bonds will replace the 8% bonds scheme which was earlier in place for retail investors. Also the tenure has been increased from 6 years (For 8% bonds) to 7 years now.

In this post we’ll see some of the features of these 7.75% GOI saving bonds.

Who is eligible to invest

The 7.75% Government of India Savings Bonds are open to investment by-

Resident individuals.
In individual capacity on joint basis.
On behalf of minor as father/mother/legal guardian.
A Hindu Undivided Families (HUF).

NRIs are not permitted to invest in 7.75% GOI bonds.

Where can you buy 7.75% GOI bonds

You need to make an application in Form A (Reference download- https://rbidocs.rbi.org.in/rdocs/content/pdfs/STB09012018_A1.pdf) for investing in these bonds. The application for the bonds will be received at any number of branches of State Bank of India, Nationalised Banks, three private sector banks and SCHIL(Stock Holding Corporation of India Ltd.). Names of the banks are listed here.

Public Sector Banks

1.State Bank of India
2. Allahabad Bank
3. Bank of Baroda
4. Bank of India
5. Bank of Maharashtra
6. Canara Bank
7. Central Bank of India
8. Dena Bank
9. Indian Bank
10. Indian Overseas Bank
11. Punjab National Bank
12. Syndicate Bank
13. UCO Bank
14. Union Bank of India
15. United Bank of India
16. Corporation Bank
17. Oriental Bank of Commerce
18. Vijaya Bank
19. IDBI Bank Ltd.

Private banks

1. ICICI Bank Ltd.
2. HDFC Bank Ltd.
3. Axis Bank Ltd.

Payment options and bond holding form

Payment for the bond can be done in form of Cash/Drafts/Cheques or electronic transfer.

The Bonds will be issued only in the demat form and credited to the Bond Ledger Account (BLA) of the investor.

Holding period of the bond

The Bonds will have a maturity period of 7 years.

Pre-Mature encashment of the bond

Premature encashment of the bond is permitted for individual investors in the age group of 60 years and above. Condition for that are as follows-

If the investor is in the age bracket of 60 to 70 years then the lock in period shall be 6 years from the date of issue.
If the investor is in the age bracket of 70 to 80 years then the lock in period shall be 6 years from the date of issue.
If the investor is 80 years and above lock in period shall be 4 years from the date of issue.

Note that in case of joint holders or more than two holders of the Bond, the premature encashment is not allowed and the lock in period will be 7 years even if any one of the holders fulfils the above conditions of eligibility.

In case of premature encashment there is also a penalty which is calculated as - 50% of interest due and payable for the last six months of the holding period both in respect of Cumulative and Non-cumulative bonds.

Minimum and maximum limit of investement

Minimum amount to invest in 7.75% GOI bond is Rs. 1000 (face value) and in multiples of 1000.

There is no maximum limit.

Interest options

As the name suggests these bonds will bear interest at the rate of 7.75% per annum but you have two options to choose from while buying-

Cumulative
Non-cumulative

Interest on non-cumulative Bonds will be payable at half-yearly intervals from the date of issue where as interest on cumulative Bonds will be compounded half-yearly but will be paid only on maturity along with the principal.

In case of cumulative bond the maturity value of the Bonds shall be Rs. 1,703.00 (principal + interest) for every Rs. 1,000.

Interest for non-cumulative Bonds will be paid from date of issue up to 31st July / 31st January as the case may be, and thereafter half-yearly for period ending 31st July and 31st January on 1st August and 1st February.

Interest for non-cumulative Bonds will be paid from date of issue up to 31st July / 31st January as per the date of issue, and thereafter half-yearly for period ending 31st July and 31st January on 1st August and 1st February.

Tax treatment

The interest earned on 7.75% GOI saving bonds is taxable as per the applicable tax slabs.

Tax will be deducted at source too at the time of interest payment.

Tax will be deducted at source while making payment of interest on the Non-Cumulative Bonds from time to time and credited to Government Account.

Tax on the interest portion of the maturity value will be deducted at source at the time of payment of the maturity proceeds on the Cumulative Bonds and credited to Government Account.

The Bonds will be exempt from wealth-tax under the Wealth Tax Act, 1957.

Nomination facility in 7.75% GOI bonds

You can nominate one or more persons using Form B. You can also cancel the previous nomination using Form C.

No nomination shall be made in respect of the Bonds issued in the name of a minor.

If the nominee is a minor, the holder of Bonds may appoint any person to receive the Bonds/ amount due in the event of his / her / their death during the period the nominee is a minor.

Tradability or loan against Bonds

The Bonds are not tradable in the secondary market and are not eligible as collateral for availing loans from banks, financial Institutions and Non-Banking Financial Companies.

So theses are features of the 7.75% Government of India saving bonds, based on that you can make an informed decision whether to invest in these bonds or not. I can again sum up the good points and bad points.

Good points about 7.75% GOI bonds

Risk free investment, backed by Government of India.
Assured return of 7.75% with no fluctuation.
Reasonable lock-in period of 7 years with option for senior citizens to encash it prematurely.
Provides an option to get interest income every 6 months if you opt for non-cumulative bonds.
Going by the prevalent interest rates (Jan, 2018 – Mar 2018 quarter) where small saving schemes like PPF are giving 7.6%, FDs are offering 6%-6.5%, Kisan Vikas Patra (KVP) is giving 7.3%, interest rate provided by these bonds looks better.

Bad points about 7.75% GOI bonds

Interest income is taxable making the real returns reasonably less if you are in 20% or 30% tax slab. For a person who is in 30% tax slab real rate of return will be around 5.5%. So in comparison to risk free EEE investments which are available like PPF, SSY it’s returns are low.
Investment in these bonds can’t be claimed under 80C.
Even for Senior citizens who are finding it attractive because of pre-mature encashment option there are better options available like Senior Citizen Saving Scheme which offers 8.3% interest rate (Jan, 2018 – Mar, 2018 quarter) and duration is 5 years.
There are early indications that interest rates may start going up in next quarter or two. So locking up amount at 7.75% interest rate that too taxable may not be a good idea right now if you can wait.

That's all for this topic 7.75% Government of India Savings Bonds. If you have any doubt or any suggestions to make please drop a comment. Thanks!

Related Topics

You may also like -

>>>Go to Fixed Income Options Page

Tuesday, 9 January 2018

Senior Citizen Saving Scheme (SCSS) Closure And Pre-Mature Closure Rules

Senior Citizen Saving Scheme (SCSS) is a risk free investment scheme for senior citizens looking for options to invest their retirement corpus. It also provides better interest rate than other small saving schemes.

In the post Senior Citizen Saving Scheme (SCSS) we have already see many features of SCSS. In this post we’ll see what options do you have once SCSS account matures and how to close SCSS account prematurely.

SCSS account maturity

Once the SCSS account completes 5 years you have two options -

Close the account and withdraw the amount.
Extend the SCSS account for another three years.

Closing the account

If you wish to close the account and withdraw the maturity amount after the expiry of five years from the date of opening of the account, you need to submit the filled closure form (Form E : Reference download - https://www.indiapost.gov.in/VAS/DOP_PDFFiles/form/FormforClosingSCSS.pdf) along with the passbook to the concerned deposit office.

Extending the account

If you wish to extend the account after the expiry of five years you can do so by submitting Form B (Reference- https://www.indiapost.gov.in/VAS/DOP_PDFFiles/form/ApplicationFormforExtensionofSCSS.pdf).

In case you do not close the SCSS account on maturity and also do not extend the account, the account will be treated as matured. In that case depositor will be entitled to close the account at any time. Post maturity an SCSS account will get the interest at the rate as applicable to the deposits under the Post office Savings Accounts.

Pre-mature closure of SCSS account

Pre-mature closure may happen in case of death of the depositor. You are also entitled to close the SCSS account prematurely any time after it completes one year.

Death of the depositor

In case of death of the depositor before the SCSS account matures, the account shall be closed. Nominee or legal heir needs to make an application in Form F for getting the refund of SCSS deposit along with accrued interest.

Pre-mature closure of Account

Pre-mature closure of the SCSS account by depositor is possible with certain conditions.

SCSS account must have completed one year.
In case the SCSS account is closed after the expiry of one year but before the expiry of two years from the date of opening of the account, an amount equal to one and half percent of the deposit shall be deducted and the balance paid to the depositor.
In case the account is closed on or after the expiry of two years from the date of opening of the account, an amount equal to one percent of the deposit shall be deducted and balance paid to the depositor.

Partial withdrawal

Partial withdrawal in SCSS are not permitted. In case of any emergency you can anyway close the account with some penalty levied on the withdrawal.

That's all for this topic Senior Citizen Saving Scheme (SCSS) Closure And Pre-Mature Closure Rules. If you have any doubt or any suggestions to make please drop a comment. Thanks!

Related Topics

You may also like -

>>>Go to Fixed Income Options page

Senior Citizen Saving Scheme (SCSS)

Senior Citizen Saving Scheme (SCSS) is started with an idea to provide a risk free investment avenue to senior citizens who are looking for an investment option to invest their retirement corpus.

Some of the benefits of SCSS are as -

Risk free investment options for retirees. Scheme is backed by government.
Tax benefit, investment is SCSS can be be claimed for deduction under 80C with in a permissible limit of Section 80C.
Provides one regular source of income in form of quarterly interest payment.

Where to open Senior Citizen Saving Scheme account

SCSS account can be opened in any public sector bank or in a network of post offices by making an application in Form A.

Right now only one private bank ICICI can open SCSS acount.

A depositor may open the account in individual capacity or jointly with spouse. In case of joint account age eligibility criteria is applicable on the primary depositor.

Required documents

Account opening form. (Reference form - https://www.sbi.co.in/portal/documents/21386/22045/FORM-A+%28SCSS+Ac+OPENING+form%29_28_NOV_2016.pdf)
Photograh of the applicant(s).
Age proof.
Address proof.
PAN card.
Aadhaar details.
Certificate from employer in case of superannuation or VRS when opening account between the age of 55 and 60.

Eligibility for opening SCSS account

An individual who has attained the age of 60 years and above can open SCSS account.

Any individual who has attained the age of 55 years or more but less than 60 years and who has retired on superannuation or VRS can also open SCSS account. In that case SCSS account must be opened within one month of receipt of retirement benefits and amount should not exceed the amount of retirement benefits.

The retired personnel of Defence Services (excluding civilian Defence employees) can open SCSS account after the age of 50 years. Earlier they could open with out any age limit but the rule has been changed.

NRI's are not eligible to open an SCSS account. Hindu Undivided Family (HUF) is also not eligible to open an SCSS account.

SCSS investment limits

There shall be only one deposit in the SCSS account and the minimum amount that can be deposited is Rs. 1000 and in multiple of Rs. 1000. The maximum amount that can be deposited is Rs. 15 lakhs.

Also the deposits by depositors shall be restricted to the retirement benefits.

So it is either deposit of amount received as retirement benefit or Rupees Fifteen lakhs whichever is lower.

Mode of deposit

While opening SCSS account you can make deposit by -

Cash, if the amount of deposit is less than one lakh rupee.
By cheque or demand draft drawn in favour of the depositor.

How many SCSS accounts for an individual

There is no limit on the number of accounts that can be opened by an individual subjected to the maximum investment limit. Which means deposits in all accounts taken together shall be restricted to the retirement benefits or Rupees Fifteen lakhs whichever is lower.

Duration of SCSS account

The maturity period of the Senior citizen saving scheme account is five years. The depositor may extend the account for a further period of three years after the maturity period of five years.

For an extension of SCSS account request should be made within a period of one year after the date of maturity period.

SCSS Interest rate

From FY 2016 - 2017 the rate of interest will be reviewed every three months so interest rate on small saving schemes will be fixed on quarterly basis and may change every quarter.

For the quarter Jan, 2018 – Mar 2018 interest rate is 8.3% for Senior Citizens Savings Scheme.

Here note that the prevailing interest rate at the time of opening SSY account will be same for 5 years. Quarterly interest rates changes won’t change the interest rate for already existing accounts.

As Example – If you are opening an SCSS account in Jan 2018 when the rate of interest is 8.3% that is the interest rate you will get for 5 years.

However, if you extend the account after 5 years then the prevailing rate of interest will be applicable on the extended account.

Interest on SCSS is paid quarterly and interest is calculated up to the last day of every quarter i.e. 31st March, 30th June, 30th Sept and 31st December.

Quarterly interest of SCSS accounts will be credited to the attached saving account.

If you have opened a SCSS account in a post office you should have a post office saving account where quarterly interest can be credited.

Tax treatment of SCSS

Investment under this scheme can be claimed as tax deduction under 80C with in the current permissible limit of Rs. 1.5 Lakh.

SCSS is not an EEE saving scheme though, the interest received in the year is taxable. There will also be a TDS on interest if the interest amount is more than Rs. 10,000.

SCSS nomination

You can nominate a person or more than one person, at the time of opening of the account. Nomination addition/modification/cancellation can be done at any time after the opening of the account before it matures. You have to submit an application on Form C accompanied by the passbook to the Branch.

There is no fee for any nomination related activity.

SCSS account transfer

SCSS account can be transferred from one deposit office to another. You can apply using Form G, enclosing the Pass Book for transfer of your account from one deposit office to another.

If the deposit amount is rupees one lakh or above, a transfer fee of rupees five per lakh of deposit for the first transfer and rupees ten per lakh of deposit for the second and subsequent transfers shall be payable.

Points to remember

SCSS account can be opened by any individual who is 60 years and above.
In case of supperannuation and VRS an individual can open SCSS account after 55 also by submitting the required documents.
For retired defence personnel age is 50.
Interest on SCSS is paid quarterly, so it provides a regular source of income for senior citizens.
Deposit in SCSS can be claimed as tax deduction under 80C.
Tax will be deducted at source if the accrued interest is more than Rs. 10,000 in a year.
There will be only one deposit in SCSS. Minimum limit is 1000 and maximum limit is Rs. 15 lakhs.
The maturity period of the Senior citizen saving scheme account is five years.
SCSS account can be extended for a further period of three years after it matures.
Pre-mature closure of the account is possible with some penalty.

That's all for this topic Senior Citizen Saving Scheme (SCSS). If you have any doubt or any suggestions to make please drop a comment. Thanks!

Related Topics

You may also like -

>>>Go to Fixed Income Options page

Thursday, 10 March 2016

Bank Fixed Deposits in India

Bank fixed deposits also known as term deposit are one of the oldest and one of the most favoured investment avenue and why shouldn't it be that way?

FDs provide flexibility in term of duration you have option from 7 days till 10 years.
Interest rate is guaranteed for the tenure of the deposit, it won't fluctuate. So no risk of ups and downs.
Fixed deposits can be broken in between of course with some penalty.
FDs also provide rebate under Sec 80 C, provided fixed deposit is for 5 years.

Reading all this any reader may think with all these benefits and ease of opening (yeah Online!) and closing why should anybody even bother about any other mode of investment?

Well with all these benefits the FDs lack the most important punch, return on your investments. FDs come under ETE (if it's a tax saver 5 year FD) or TTE (If it is not a tax saver FD) so taxes take the substantial part of your returns if you come under any of the income tax slabs.

Refer Why bank FDs are a loss making investment to know more about how taxes and inflation eat away any real return from bank FD.

That is one and most important reason you should look for other investment options like Public Provident Fund, Sukanya Samriddhi Yojana, National Pension Scheme if you're averse to the risk and Mutual Funds and stocks if you can take some risk.

How to open a FD

Any individual, Hindu undivided family even private/public limited companies and societies are eligible to open a FD with a bank. Here I'll concentrate more on procedure for individuals and HUF.

For individuals procedure for opening a FD is similar to opening a saving account. You need to furnish residential/ID proof.

Just like joint accounts you can have joint fixed deposit account too.

Identity proof

Passport
PAN card
Voter ID card
Driving licence
Government ID card
Photo ration card
Senior citizen ID card

Address proof

Passport
Telephone bill
Electricity bill
Bank Statement with Cheque
Certificate/ ID card issued by Post office

Online facility - If you already have an account with the bank where you want to do a fixed deposit you can also do it online.

FD receipt

If you are not opening a FD online you will get a FD receipt from the branch which you need to carry when your fixed deposit matures.

In case it has been opened online many banks just send a receipt by email.

How interest is calculated

Right now (FY 2015-16) most of the commercial banks are offering interests in the range 7-8% annually but the interest on term deposits is mainly calculated on the quarterly basis.

If you have opted for the quarterly pay-out then that interest is deposited to your account. If the interest is reinvested then the interest is compunded to the principal amount on a quarterly basis.

In case of monthly deposit scheme, the interest shall be calculated for the quarter and paid monthly at discounted rate over the Standard FD Rate.

Please check with your bank for the prevailing interest rate and the interest pay-outs.

As example - If you have deposited a sum of Rs. 10,000 for 2 years at the annual interest rate of 7% then the interest will compounded quarterly for this period.

Compounded amount = principal x (1 +r/n)^nt

Where n is the frequency when the interest will be compounded, in this cases it is quarterly so it is 4 times in a year.

T is the time period which is 2 in this case.

So calculation is -

10000 x (1 + 0.07/4)⁸ = 11488.82

Thus interest earned = 11488.82 - 10000
                     = 1488.82 Rs.

Interest rate for senior citizens

Fixed deposit interest rate for senior citizens (60 years & above) is generally 0.25-0.5% higher than what is offered to others.

So if general rate of interest offered for 1 year FD is 7.75% then senior citizen will get interest rate of 8.25% for the same FD.

Deduction under Sec 80C

Tax saver FD meaning FD for the tenure of 5 year or more is eligible for exemption under Sec 80C. Since maximum amount for deduction is 1.5 lakhs in a fiscal year now so that is the maximum amount you can claim under Sec 80C for a tax saver fixed deposit.

If you have opened a tax saver fixed deposit then there is a lock in for 5 years.

In the case of joint deposits, the Tax benefit under 80C will be available only to the first holder of the deposit.

Liquidating fixed deposit

Due to some emergency if you want to break your fixed deposit and withdraw the money before the FD matures it can be done with some riders.

In case you break your FD the interest rate calculated will be lower of -

The base rate for the original/contracted tenure for which the deposit has been booked.
The base rate applicable for the tenure for which the deposit has been in force with the Bank.

As exp if you booked a FD for say 3 years and interest rate for it was 8% but break it after one year. If for one year the prevailing interest rate is 6% then that is the interest rate you'll get for you FD as you are actually keeping it for one year rather than the originally planned 3 years.

On top of that there is also a penalty of 0-1% depending on the bank. So, in case your bank is levying a 1% penalty on the pre-mature withdrawals of the FD then your interest rate becomes 5%. So the formula for calculating pre-mature withdrawal of FD is -

Interest rate for liquidating FD before it matures = prevailing interest rate for the tenure FD is actually kept - penalty percentage

Tax deduction at source(TDS)

Interest earned on FD is taxable. That interest should be added to your regular income and taxed according to the income tax slab you fall into.

Apart from that tax on the interest, income on the FD should be deducted at source (Bank in this case) @10% if the interest income from FD in a year is more than Rs. 10,000 (If PAN details are not submitted to the bank then TDS will be 20%).

So if there is a TDS on your FD (you can check 26AS for the same) then at the time of filing your tax return you have to provide all those details like actual interest earned, TDS already done and based on your slab if even after the tax deducted at source your liability is more you need to pay those as taxes.

As exp. Suppose you have a FD of Rs. 2 lakh @ 8% interest rate, which means in a year your interest earned is Rs. 16,000 (calculating using Simple Interest just for simplicity). Since it is more than Rs. 10,000 so TDS @10% will be done. That means bank will deduct Rs. 1600 as TDS.

Now if you come under 30% tax slab, on this interest income you need to pay tax of Rs. 4800. Since 1600 is already deducted you are liable to pay Rs.3200 more as taxes.

Form 15G/15H - In case your annual income is less than any tax slabs then you need to tell the bank not to deduct any TDS. For that you need to fill and submit form 15H if you are a senior citizen or 15G if you are not a senior citizen.

Loan against FD

As an alternative to breaking your FD in case of some emergency you can also take loan against your FD. Loan against fixed deposit is given in the form of an overdraft against your deposited amount.

Depending on the bank you may get 70%-90% of the value of your FD as loan. Interest charged on the loan is usually 2-3% more than the term deposit rate.

The tenure of the loan is same as the remaining tenure of the FD on renewable basis. Loan amount can be repaid in EMIs or as lump sum, you have to get that information from bank.

Note that your FD will continue to earn interest in that period. But you cannot close FD if you have taken loan against it though renewal can be done.

Nomination facility

It is always better to use nomination facility as it facilitates faster and easier release of funds without insistence on Succession Certificate /Probate of Will.

Nomination facility is available for bank fixed deposits. Nomination can be made in favour of one person only. It can be cancelled or changed subsequently by the depositors.

Nomination in the favour of the minor is permitted but in that case another individual (who is not a minor himself) has to be appointed who can receive the amount of the deposit on behalf of the nominee.

That's all for this topic Bank Fixed Deposits in India. If you have any doubt or any suggestions to make please drop a comment. Thanks!

Related Topics

You may also like -

>>>Go to Fixed Income Options Page

Sunday, 28 February 2016

Bank Deposit: A Loss Making Investment

Yield or return on investment is measured in two ways:

Inflation adjusted rate of return
Inflation unadjusted rate of return.

Real rate of return for an individual is inflation adjusted rate of return because of the fact that an individual investor saves and invests to meet his future needs, e.g., purchase or construct a house of his own, child education, retirement planning, or to meet unforeseeable exigencies.

All the future goals are met at then prevailing prices which are largely influenced by the rate of inflation over the period. Inflation in monetary prices erode purchasing power of money. Due to inflation prices of commodities and services tend to rise over the period.

If the rate offered on investment is lesser than rate of inflation the compounded value of investment fall short of requirements. One more point here needs investors attention and the point is applicable rate of income tax. Tax takes away a substantial portion of earning of the individual falling within tax bracket. As rate of income tax increases in slabs, the investor must work out his post tax rate of return first and then he should compare it with average rate of inflation.

Let us illustrate it.

Suppose you put INR 10000 in a bank fixed deposit for five years @ 7.5% (since rates are falling so rate of interest Indian commercial banks are offering on FD are hovering around 7-8% at present) and you fall in 30% tax bracket.

Since interest earned on bank FD is taxable, tax payable on annual tax earning is

 10000 × 7.5% × 30% = 225 + 3% Edu. Cess = 231.75

This will leave INR 750-231.75=518.25 (5.1825%) as post tax return from the FD for you.

Compounded sum at this post tax rate for 5 years will become INR 12876. Now discount this money with the average rate of inflation estimated for the same period. It is estimated that the same will be in between 5.5% and 6% if the current trend continues in the near future. Optimistically if taken 5.5% discounted value of Compounded sum comes INR 9704.

It means at the time you book a bank FD at the given rate you book a loss of INR 296 for 5 years instead of an income, provided you are in 30% tax bracket. Those who fall in a lower tax bracket may expect a nominal gain at the given rate of inflation (5.5%). If the rate of inflation stay at a higher order this will upset the calculations.

Note that investment in 5 year FD can be shown in 80C for exemption, so that factor is also there. But the above calculation just gives the general idea how you loose money in bank deposits after adjusting it for inflation.

Apart from the risk of upward movement of the rate of inflation there is yet another reason as to why a higher rate of return is required. The reason lies in the method of estimating rate of inflation.

In India inflation data are calculated on two different basis:

On the basis of wholesale commodity price
On the basis of consumer prices

The second is valid for household individuals. But the problem is that the Consumer Price Index (CPI) are computed taking the prices of daily consumption items in a given proportion. Thus the CPI reflects inflation (price rise in daily consumption items), not in the items average individual save for.

Normally we save to buy house, to pay for children education expenses, to meet children expenses and to meet medical expenses in case of ill health. The past experience show the rate of rise in these items cost have been much higher, about 10% to 12% per annum. When pre tax rate of return is barely 7.5% how can it help you meet your target?

Then, what should be right strategy? Answer is- put a small proportion of your savings in bank just enough to provide handy cash to meet emergency cash needs. To meet long term goals go for PPF (EEE deposit scheme) and National Pension System(NPS) (EET deposit scheme) for higher yield investments.

If you can invest more money look at proven mutual fund plans, preferably multicap funds and balanced (hybrid) funds in order to keep level of risk at lower side.

That's all for this topic Bank FDs - A Loss Making Investment. If you have any doubt or any suggestions to make please drop a comment. Thanks!

Related Topics

You may also like -

>>>Go to Fixed Income Options page

Sunday, 22 March 2015

Sukanya Samriddhi Account (SSY) Pre-Mature Closure And Partial Withdrawal Rules

The duration of the Sukanya Samriddhi account is 21 years from the date of the opening of the account. But there are some scenarios when SSY account is permitted to be closed prematurely.

Beneficiary getting married

SSY account can be closed if marriage of the account holder (girl child) takes place before the completion of 21 years of SSY account.

Earlier SSY account has to be closed in case of marriage but as per new rules, in case of marriage, pre mature closure of the SSY account is allowed with in a month before the marriage or with in three months after the marriage. If SSY account is not closed with in that window, in case of marriage, then it has to be continued till maturity (i.e. 21 years).

If SSY account has to be closed in case of marriage proper proof has to be given that girl is over 18 at that time

Untimely death of the account holder

In the unfortunate event of death of the account holder (girl child), the account shall be closed immediately on production of death certificate issued by the competent authority. In that case the balance at the credit of the account shall be paid along with the accrued interest till the month preceding the month of premature closure of the account, to the guardian of the account holder.

Hardship to the account holder

The other case when Sukanya Samriddhi Yojana account can be closed prematurely is when the central government is satisfied that operation of the account or continuation of the account is causing undue hardship to the account holder (guardian). Authorities may allow pre-mature closure of the SSY account only in cases of extreme compassionate grounds such as medical support in life threatening diseases, death etc. The application for pre-mature closure in this case has to be given with the proper reason.

There is one condition though in this case, pre mature closure is permitted only after the completion of five years of the SSY account opening.

Resident status change for the beneficiary

SSY account is only for resident Indian. After the opening of SSY account, if the account holder becomes a NRI or non-citizen; as per rule no interest shall be deemed to accrue to the account from the day of change in status and the SSY account shall be deemed to be closed prematurely from that date. The intimation for the change in residential status shall be given by the guardian or the accout holder to the concerned post office or bank with in the period of one month from the date of change in citizenship status.

Pre-mature closure for any other reason

Apart from all these scenarios premature closure of the SSY account may be permitted anytime after the opening of an account but in that case the whole deposit shall be eligible only for the interest rate prescribed for the Post Office Savings Bank.

Partial withdrawal rules

Partial withdrawal is permitted, to meet the financial requirements of the account holder for the purpose of higher education.

In this cases partial withdrawal up to fifty percent of the balance at the credit, at the end of preceding financial year shall be allowed. This partial withdrawal will be allowed only when the account holder girl child attains the age of eighteen years or has passed 10th standard, whichever is earlier.

Let's clarify it with an example - If an account is opened for a girl child whose birth date is 10th Aug 2014 then her 18th birthday would be on Aug 10th 2032. Now if fifty percent withdrawal is requested then the sanctioned amount would be the fifty percent of the amount in the SSY account as of 31st march, 2032.

In case you are opting for partial withdrawal to cover higher educaton expenses you need to provide documentary proof in the form of a confirmed offer of admission of the account holder in an educational institution or a fee-slip from such institution clarifying such financial requirement.

Partial withdrawal may be made as one lump-sum or in istalments, not exceeding one per year, for a maximum of five years.

The partial withdrawal is restricted to the actual demand of fee and other admission charges as per the submitted document. So if amount for fee and other charges is coming to less than 50% of the account balance then you are eligible for partial withdrawal upto the amount for fee and other charges.

Points to note -

Pre-mature closure of the account is permitted in case of the death of the account holder or when it is causing extreme hardship to the depositor to carry on the operation of the account.
NRIs or non-citizens are not permitted to hold SSY account. In case there is a change of status in citizenship of the account holder, SSY account shall be considered closed.
Partial withdrawal up to 50% is permitted in case of higher education of the girl child.
Partial withdrawal is allowed only when the account holder girl child attains the age of eighteen years or has passed 10th standard, whichever is earlier
After the marriage of the girl child SSY account can be closed even if 21 years of SSY account are not completed.

That's all for this topic Sukanya Samriddhi Account (SSY) Pre-Mature Closure And Partial Withdrawal Rules. If you have any doubt or any suggestions to make please drop a comment. Thanks!

Related Topics

You may also like -

>>>Go to Fixed Income Options page