Why You Must Consider This Scheme At 7.1% Interest Rate When It Comes To Your Child’s Future?

With the increasing expense of schooling and way of living, parents, therefore, need to prepare properly to ensure that all amenities and better education are available for their children. Although several options are available on the market that will help parents invest for the future of their child, most do not offer assured returns, tax benefits and maturity proceeds. Public Provident Fund (PPF) is a plan providing EEE tax benefits, assured returns and a range of other advantages with a long lock-in term of 15 years. The PPF account will be a great benefit to minors. Present PPF regulations enable you to open a PPF account on a minor’s behalf. It is possible to open a minor PPF account with either a post office or a specified bank branch allowed to open PPF accounts. In the absence of natural guardians, a minor PPF account can be opened or managed by natural guardians (mother, father) or legal guardians. Remember that the account can be opened by only one of the guardians. On behalf of the same minor, both mother and father can’t open the account. Even if they are legitimate guardians after the parent’s death, the PPF account can not be opened by grandparents for the minor child. 

What are the documents required to open PPF on behalf of your child?

In the PPF account opening form, the guardian can provide his details along with the minor’s. In addition to the filled-in form, you must attach KYC documents, a passport size photograph, age proof of a minor child (Aadhaar card or birth certificate), an initial contribution cheque to the PPF account of Rs 500 or more. It is recommended that while opening the PPF account, you must add a nominee. 

Minimum and maximum investment limit

In the fiscal year, the minimum contribution is Rs 500, whereas the maximum contribution is Rs 1.5 lakh is allowed under PPF. The annual contribution to your PPF account and that of the minor child should not surpass Rs 1.50 lakh. Currently, this scheme provides an interest rate of 7.1 per cent per annum.

Lock-in period

If you open PPF on behalf of your child when they are at a young stage, the lock-in duration will be very short by the time they are adult, – this means the earlier you initiate, the sooner your child will get over the lock-in. For e.g., if you start contributing to PPF on behalf of your minor child when he or she is only 10 years old, this PPF account will complete the lock-in duration of 15 years by the time the child is 25-26 years old. They can opt for an extension if your child does not need the money even then, as PPF enables you to prolong your account in five-year blocks. So if the money is not needed by your child, they can prolong it for another block of five years or more. So, in this case, as you started early, the lock-in for your child under PPF will decline from 15 years to five years at their requirement. It is important to note that in the hands of the account holder, interest earned in the minor PPF account along with the maturity profit or amount is tax-free. Contributions made to the PPF account are eligible FOR a deduction under Section 80C of up to Rs 1.5 lakh per fiscal year.   

 

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