Despite the fact that there are several instruments such as Debt Fund, Life Insurance, ULIP(Unit-Linked Insurance) Plan, even Equity Mutual Funds, etc on the market that can support parents in saving for their child's future. But these investments are well known for risk in nature. One of the most significant high-value expenditures that parents must budget for is their children's education. And as a result, parents should and should invest in guaranteed return products. That being said, the Public Provident Fund (PPF) is one debt instrument that provides tax benefits, guaranteed returns, and a variety of additional advantages. Minor PPF accounts can be opened at a post office or a recognised bank branch, such as SBI, that is approved to open PPF accounts. So now let's now discuss why PPF is a smart and secure bet to invest on behalf of a minor child.
Eligibility and documents required
Resident legal guardians can open and manage a minor PPF account. A person can only open just one account on behalf of each minor or person of unsound mind over whom he or she has guardianship. The grandparents of a minor child cannot manage a PPF account if they are legal guardians following the demise of the parents. Along with the completed form KYC documents of the guardian, a photograph of the minor kid, age proof (Aadhaar card or birth certificate) of the minor child, and a cheque for the initial contribution to the PPF account is also required. A minor's PPF account, on the other hand, can only be managed on his or her behalf by a parent or guardian until the account holder reaches the age of 18.
In a fiscal year, the minimum contribution is Rs 500 and the highest contribution is Rs 1.5 lakh. The yearly contribution to your and your minor child's PPF accounts should not be more than Rs 1.50 lakh. The account can be started with a minimum initial deposit of 500 rupees, followed by deposits of any amount in multiples of 50 rupees. Any account in which the account holder fails to deposit the required amount in subsequent years after depositing five hundred rupees in the initial year would be considered discontinued. The subscriber of a discontinued account is not eligible to open a new account until the discontinued account is closed after maturity. However, loan and partial withdrawal facilities are not permitted in such an account, and the account holder shall be banned from opening another account in his name under PPF until the permanent closure of such account.
Lock-in period and withdrawal rules
A PPF account is locked in for a term of 15 years. This implies that you cannot withdraw funds from your PPF account before 15 years have passed from the end of the fiscal year in which you made your initial contribution into your PPF account. In the case of an account created on behalf of a minor or a person of unsound mind, the guardian may request to the concerned post office or bank for a withdrawal for the benefit of the minor or person of unsound mind by submitting a certificate. The account holder must exercise the option to extend the account before one year from the account's maturity date. A guardian may request at the account-office that an account opened on behalf of a minor or a person of unsound mind be extended. In the event of a life-threatening disease, higher education, or a change in the account holder's residence status. On an application to the account-office in Form-5, an account holder can request the premature closure of his account or the account of a minor or person of unsound mind for whom he is the guardian.
An account holder can deposit up to Rs 1.50 lakh to both his or her own PPF account and the minor's one. The same limit is also capped for a single PPF account. As a reason, your deposit to your minor child's PPF account, made jointly by you and your spouse, should not exceed Rs 1.50 lakh. The interest earned in the minor PPF account, as well as the maturity amount, are tax-free for the account holder. The limit of Rs 1.50 lakh applies to contributions made to your minor child's PPF account if you want to claim the tax benefit under Section 80C.
Loan facility against minor account
The account-owner may submit Form 2 for obtaining a loan to either the bank in concern or the post office, at any time after the period of one year from the end of the year in which the initial subscription was made, but before the expiry of five years from the end of the year in which the initial subscription took place. The loan amount should not surpass 25% of the amount on his account at the end of the second year immediately preceding the year in which the loan is authorized.
Extension of PPF account on behalf of a minor
On the expiry of fifteen years from the end of the year in which the account was opened, the account holder can extend his or her account and continue to make deposits for a further block term of five years by submitting Form-4 to the account-office. A guardian may request for an account extension opened on behalf of a minor or a person of unsound mind. If the account holder does not indicate his option to continue the account within one year of its maturity date, no contributions can be made.