The National Savings Organization (NSO) started the Public Provident Fund or PPF scheme in 1968 in order to encourage small investments and savings among investors. Anyone can open a PPF account, and it is considered an ideal savings avenue.
PPF is a popular scheme when you want to invest in small savings but with good returns. It provides triple tax benefits in EEE, i.e., taxes are exempt from the contribution made to the account, the maturity benefits, and the interest earned. Thus, it also helps with long-term savings. People also see it as a retirement fund because of the long lock-in period.
There are no minimum or maximum age restrictions to open a PPF account, and hence, you can open an account for a minor at the same time. The goal of creating a PPF account for a minor is to generate small savings through a fair-return investment.
Benefits of opening a PPF account
- Transparency in the process. For example, the rate of interest is announced every year by the government.
- Higher rate of interest as compared to other funds.
- Deemed a safe investment since it is run by the government and yields guaranteed results.
- No taxes once it reaches maturity on the contributions made and the interest earned.
Did you know you can get tax deductions up to Rs. 1.5 lakh (annually) on the investments made in PPF? However, note that only one account can avail of this deduction limit of Rs. 1.5 lakhs, either the guardian or the minor.
- Having a PPF account early also encourages youngsters to save money during their first jobs. The children can also continue the account even after 18 and thus get the same benefits.
Eligibility criteria for opening a PPF account for your child
- The person opening the account should be the natural or legal guardian of the minor in question.
- Only one parent or guardian can open a PPF account in the child’s name.
- The parent or guardian needs to be a resident of India.
- You must mandatorily register a nominee at the time of opening the account.
You can look after your child’s PPF account until they are of age, i.e., 18 years. After that, you can apply to change the status (of the child) from minor to major so that the account holder can operate the account from then onwards.
Where can you open an account?
You can open the PPF account for a minor at any post office or financial institution allowed to open the PPF accounts. A few places offer the option of opening accounts through online websites. Please note that you cannot open a PPF account for a minor jointly.
Documents requirements for opening a PPF account
Along with a duly-filled application form, you need to attach the following documents: Completed KYC documents of the guardian
- Photograph of the minor
- Age proof of the child, such as the birth certificate or the Aadhar card
- An account-payee cheque for the opening contribution to the PPF account
Things to know before opening a PPF account for minor
- If the guardian or parent already has a PPF account in their name, then the maximum limit of the amount to be deposited cannot exceed Rs. 1.5 lakh. This means that the total amount in the child and the guardian accounts cannot be more than 1.5 lakh in one financial year.
- You must also register a nominee while opening the account.
- Grandparents on either side cannot manage the PPF account of their grandchild unless they are their legal guardians.
- If the parent/guardian is investing the amount from their income, they can include it under Section 80C of the Income-tax Act to get income tax benefits.
- From the seventh year onwards, you can make partial withdrawals. If the money you are withdrawing is from the minor’s account, then a declaration needs to be made that you will use it for the minor. You can also take loans from the child’s account, provided the guardian gives the same declaration as before.
To sum up
Even though there are other options to contribute, such as equity mutual funds, life insurance, debt funds, etc., they are known for their risky nature. Thus, if you are looking for a financial investment backed by the government and comes with low risk, a PPF account for your minor is the right choice to make. It helps in providing tax benefits for you and helps in securing future milestones in your child’s life. For example, if your goal is to save money for marriage, higher education, or emergency funds – the most convenient fund.
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