Businesses Desk – Build Your Child's Future Fund: If you want to make an investment plan for your child's future now, then Public Provident Fund i.e. PPF can be an option. Currently, this government savings scheme is offering 7.1% annual interest. In this, by opening an account in the name of the child, a good fund can be created in the long run.
However, there are some special rules for opening a PPF account in the name of a minor and depositing money in it. Especially when the parents also have their own PPF account. Let us know the important rules and investment calculations related to child's PPF.
Only parents or legal guardian can open the account
PPF account in the name of a minor child can be opened and operated only by his parents or legal guardian. A person can open only one PPF account in his name. Apart from this, he can also open a PPF account in the name of a minor child along with his account.
However, both mother and father cannot open separate PPF accounts in the name of the same child. If there are two minor children in a family, then as per the rules, the mother can open a PPF account in the name of one child and the father in the name of the other child.
Deposit from Rs 500 to Rs 1.5 lakh in a year
A minimum of Rs 500 and a maximum of Rs 1.5 lakh can be deposited in the PPF account of a minor in a financial year. But there is an important rule here. If the mother or father also has their own PPF account, then the combined annual deposit in their own account and the account of the minor child cannot exceed Rs 1.5 lakh.
understand with example
Suppose a parent deposits Rs 1 lakh in his PPF account in a financial year and deposits Rs 80 thousand in the child's PPF account. The total deposit in both the accounts will be Rs 1.8 lakh. According to the rules of PPF, in this situation only a maximum limit of Rs 1.5 lakh will be valid. There will be no interest at PPF rate on the additional Rs 30 thousand and there will be no tax benefit on this additional amount.
After 18 years of age the child will be able to manage the account himself
After the child turns 18, he will have to apply to change the PPF account from Minor to Major. After completion of the process, the adult child can manage his PPF account himself. That is, till the age of 18 years, the account is operated by the parents or legal guardian, whereas after attaining the age of majority, the responsibility of the account becomes that of the child.
PPF account matures in 15 years
The maturity period of PPF is 15 years. On completion of the period the account holder can withdraw the entire amount. If the money is not needed immediately then the account can be continued further. For this, there is an option to extend the PPF account for a period of 5 years. In this way, a large corpus can be created by continuing to invest for a long time.
Tax benefit is available in the old tax system
PPF is kept in EEE i.e. Exempt-Exempt-Exempt category. That means you get tax benefits on investment, interest and maturity amount. In the old Income Tax Regime, tax exemption of up to Rs 1.5 lakh can be claimed annually under Section 80C of the Income Tax Act on investments made in PPF. However, taxpayers choosing the new tax regime do not get this exemption of section 80C.
How much fund will be created from Rs 1,000 every month?
If even a small amount is invested in PPF for a long time, a good corpus can be created. According to the given example, if you invest Rs 1,000 every month i.e. Rs 12 thousand in a year, then after 15 years a fund of about Rs 3.18 lakh can be created.
At the same time, by investing Rs 2,000 every month i.e. Rs 24 thousand annually, you can get around Rs 6.37 lakh after 15 years. The actual amount may vary depending on the applicable interest rate of PPF and the method of crediting into the account.
Who can open PPF account?
Any person can open a PPF account in his/her name in Post Office or Bank. Apart from this, parents or legal guardian can also open an account on behalf of the minor.
Before starting to invest in PPF for the future of the child, parents should keep in mind their annual PPF limit, existing account and tax regime. It is especially important to ensure that the combined annual deposit in the accounts of parents and children does not exceed the limit of Rs 1.5 lakh.