Kolkata: PPF or Public Provident Fundis a familiar instrument for generating safe guaranteed returns. But there is an aspect of PPF which is not known
to a large part of those who are aware of PPF — that one can open a PPF account in the name of one’s kid — male or female — soon after birth. It is known as a minor PPF account and carries benefits similar to the PPF account for adults. However, the fact that one can open such an account soon after birth of a child makes a big difference. PPF carries an annual interest rate of 7.1%. It also gives generous income tax benefits since the account falls under the EEE (exempt-exempt-exempt) category, which implies that the principal amount, interest and maturity amounts are all tax free when the account matures, irrespective of the amount accumulated in the account. For this reason, if anyone wants to create a significant corpus for the higher education or seed money for business for a child, PPF can be an appropriate instrument for these financial goals. The account is operated by the guardian till the child remains a minor.
How to open a PPF minor account
The process of opening a minor PPF account is no difficult than opening a regular PPF account. It can be opened by a parent or legal guardian at a designated bank or post office. One can also open a PPF account digitally. One has to submit KYC documents such as Aadhaar card, address proof and photograph. It has to be opened in the name of the minor. The child’s birth certificate, or an Aadhaar card is also needed.
Real advantage of long-term compounding
The rule says that when the minor grows into an adult, he/she must take charge of the PPF account and a fresh KYC is required. However, if the account is continued and not closed, the real big benefits can creep in. Consider this. A minor PPF account is opened in the name of a child when he/she is one year old. But when the person grows up he/she does not close the account and on the contrary keeps investing Rs 1.5 lakh a year for 50 years. When this person reaches 51, the funds touch a figure of Rs 6,75,75,988, of which Rs 6,00,75,988 is the interest component. The returns are actually higher if one considers the income tax benefits. The interest has been assumed at 7.1% throughout.
Point on investment ceiling to remember
One has to remember that is a parent opens a PPF account for his child, the total ceiling for annual investment remains at Rs 1.5 lakh a year. This limit is a combined ceiling for all PPF accounts held by an individual and includes accounts opened for his/her children.
