Securing Your Children’s Future: The Benefits of Opening a PPF Account in Their Name

Investing in the future of our children is a goal shared by many parents. Whether it’s for their higher education or marriage expenses, parents often seek investment options that offer both security and attractive returns. One such investment avenue that provides these benefits is the Public Provident Fund (PPF). The PPF is a government-backed savings scheme that can be opened in the name of children, offering risk-free investing and numerous advantages for long-term financial planning.

One of the key advantages of investing in a PPF account is the low risk associated with it. The scheme is guaranteed by the Central Government, ensuring the safety of the investment. This feature makes it an attractive option for risk-averse individuals who prioritize the security of their investments. Additionally, the PPF allows for investments to be started with small amounts, making it accessible to a wide range of savers.

Under the provisions of the Public Provident Fund Act, parents can open an account in their own name and credit it in the name of their minor children. This arrangement allows parents to plan for their children’s future financial needs effectively. The lock-in period for a PPF account is 15 years, meaning that withdrawals can only be made after the completion of this period. If the account is opened in the child’s name at a young age, it will mature during their working period or at the time of coming of age, aligning with their future financial requirements.

Investment Limit

While parents can also open PPF accounts in their own name, there is a limit to the total amount that can be deposited in both accounts. Currently, the maximum deposit limit is set at Rs 1.50 lakh per year, which is eligible for tax deduction under Section 80C of the Income Tax Act. Opening an account in the child’s name allows them to enjoy the benefits of the PPF scheme independently while utilizing the tax benefits effectively.

15 Years Lock in Period

One of the distinctive features of the PPF scheme is its 15-year lock-in period. When an account is opened in the child’s name, it becomes their property when they turn 18 years old, and subsequent withdrawals can only be made with their permission. At maturity, the account holder has the option to either withdraw the accumulated amount or extend the account. If they choose to extend the account, the lock-in period for the subsequent term is reduced to 5 years, making it a quarter less than the original lock-in period.

Don Not Pay Tax

Tax benefits are another significant advantage of investing in a PPF account. The investment made, along with the interest earned and withdrawals, are entirely tax-free. This tax exemption makes the PPF an attractive investment option, particularly for those who want to maximize their returns without incurring any tax liabilities. However, it is worth noting that the long lock-in period of 15 years may limit liquidity. Nevertheless, this drawback can be overcome by opening the account in the child’s name, allowing for better liquidity management.

The Term Can Be Extended

After the maturity of a PPF account, the account holder has two options: they can either withdraw the money and close the account or extend the account with or without re-depositing funds. The tenure of the PPF account can be extended as many times as required, with each extension lasting for a block of five years. This flexibility provides individuals with the freedom to align their investment goals with their financial circumstances.

By opening a PPF account in the child’s name, parents can also cultivate the habit of saving and financial planning from an early age. When the child reaches the age of majority, the lock-in period for the account reduces to five years. During this time, the account holder can decide whether to extend the account with or without future contributions. If they choose to extend the account and continue making new investments, they can develop a habit of saving and investing from their first job, setting them on a path of financial stability and growth. Moreover, they can continue to claim tax benefits under Section 80C while nurturing their savings habit.

PPF Calculator

To better understand the potential returns from a PPF account, one can use a PPF calculator. Currently, the interest rate for PPF is 7.10 percent. Suppose an individual invests the maximum amount of Rs 1.50 lakh per year for 15 years. In that case, they would receive a total of Rs 40,68,209 over the term, with Rs 18,18,209 earned as interest from an investment of Rs 22.50 lakhs. If the investment is extended for another 5 years, the total amount would grow to Rs 66,58,288 in the 20th year. Similarly, investing Rs 1.50 lakh per year in PPF for 25 years can yield Rs 1,03,08,015, resulting from an investment of Rs 37.50 lakhs. These figures demonstrate the potential growth of funds over the long term through PPF investments.

In conclusion, investing in a PPF account in the name of children offers numerous benefits for long-term financial planning. The scheme provides a secure and risk-free investment option with an attractive interest rate. The lock-in period of 15 years can be advantageous for parents who want to plan for their children’s future expenses while ensuring financial stability. Opening the account in the child’s name fosters financial discipline and independence, and the tax benefits further enhance the overall returns. With the flexibility to extend the account and the potential for substantial growth, the PPF is a wise investment choice for parents seeking to secure their children’s future.

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