Why Should Parents Open A PPF Account For Their Kids?

As parents, securing the future of our children is of paramount importance. One of the most effective ways to build a strong financial foundation for them is by opening a Public Provident Fund (PPF) account. The PPF is a government-backed savings scheme that offers attractive returns and numerous benefits. This article explores why all parents should consider opening a PPF account for their children and how it can contribute to their long-term financial well-being.

Benefits of minor PPF account

Tax benefits

The PPF offers significant tax advantages, making it an attractive investment option for parents. Contributions made towards the PPF account are eligible for tax deductions under Section 80C of the Income Tax Act, up to a maximum limit of Rs. 1.5 lakh per financial year. Additionally, the interest earned and the maturity proceeds are tax-free, providing a tax-efficient avenue for wealth creation.

Period

The PPF account offers a notable advantage with its lock-in period of 15 years, allowing for long-term financial planning. Upon reaching the age of 18, the child gains the flexibility to choose between closing the account or extending its tenure. While the PPF is widely recognized as a reliable investment option, its extended lock-in period of 15 years does present a challenge in terms of liquidity.

Partial withdrawal facility

According to the rules of the Public Provident Fund (PPF), account holders are permitted to make withdrawals from their PPF accounts starting from the 7th year, subject to specific terms and conditions. However, the withdrawal regulations for an extended PPF account differ.

During the extension years of a PPF account, the account holder has the opportunity to make one withdrawal per financial year. The maximum withdrawal amount depends on whether the account has been extended with or without fresh contributions.

If the PPF account is extended without any additional contributions, the account holder can withdraw any amount within the available balance limit. Conversely, if the account is extended with fresh contributions, the withdrawal amount during the five-year block cannot exceed 60% of the balance available at the start of the extension period.

Therefore, if your child requires funds for a short-term study course, they have the option to withdraw the required amount from the PPF account while continuing to earn interest on the remaining balance. This flexibility allows for meeting immediate financial needs while maximising the growth potential of the PPF account.

Interest rate

PPF account interest rate currently is 7.1%.