Many parents start a Public Provident Fund (PPF) for their children but stop a few years down the line. Opening a PPF for your children is an excellent idea, but you also need to be consistent for your child to reap the benefit.
“As per paragraph 3 of the Public Provident Fund Scheme, 2019, any parent or legal guardian can open a Public Provident Fund account in the name of a minor child. Please note that not more than PPF one account can be opened in the name of a person. Under the PPF scheme, 2019 there is no restriction on any of the parents or both parents contributing to the PPF account of a minor child,” said tax and investment expert Balwant Jain.
Benefits of opening PPF account for minor
1)Lock-in period
One of the benefits of the PPF account is its 15-year lock-in period. And once the child turns 18, he/she can decide whether to close the account or extend it.
“Your child can choose whether to shut the PPF account or keep it open once they turn 18 and the account has served its required lock-in period of 15 years. Children who open PPF accounts when still young can avoid lock-in in the future,” said Vinit Khandare, CEO and Founder, MyFundBazaar.
As a result, PPF is regarded as a solid investment option, but because of its lengthy lock-in term of 15 years, liquidity becomes an issue. For your youngster, this drawback will be eliminated or diminished, he added.
A family can have as many PPF accounts; one for each member is also possible. However, each individual can have only one PPF account either in Post Office or Bank and the maximum total amount that an individual can invest/deposit in a financial year is limited to ₹1.5 lakh.
3) Compounding
If you want to invest in a financial instrument with low risk, the government-backed Public Provident Fund is the way to go.
4) PPF interest rate History
Pankaj Mathpal, MD & CEO at Optima Money Managers said that when the kids grow up, the interest rate on PPF will not be 7%, it will be lower as there was a time when this scheme used to offer 12%. So, till the time your child grows, he will have a corpus amount with EEE status. PPF is one investment vehicle that falls under the Exempt-Exempt-Exempt (EEE) category. “It is always recommended that the account be opened early on in life rather than later, to get the maximum benefit out of PPF,” said Pankaj Mathpal.
Compounding can create a snowball effect, as the original investments plus the income earned from those investments grow together.
The history of PPF interest rates shows that the Public Provident Fund Account interest rate between 1 April 1986 to 31 March 1988 and 1 April 1988 to 14 January 2000 was 12%.
In the last 10 years, the PPF interest rate has varied between 7.1% to 8.8%.
PPF interest rate
The current PPF rate is 7.1%.
Updated: 29 Jun 2023, 12:28 PM IST