How to open PPF account for Minor

The National Savings Organization (NSO) started the Public Provident Fund or PPF scheme in 1968 in order to encourage small investments and savings among investors. Anyone can open a PPF account, and it is considered an ideal savings avenue.

PPF is a popular scheme when you want to invest in small savings but with good returns. It provides triple tax benefits in EEE, i.e., taxes are exempt from the contribution made to the account, the maturity benefits, and the interest earned. Thus, it also helps with long-term savings. People also see it as a retirement fund because of the long lock-in period.

There are no minimum or maximum age restrictions to open a PPF account, and hence, you can open an account for a minor at the same time. The goal of creating a PPF account for a minor is to generate small savings through a fair-return investment.

What is a PPF Account for Minors?

A Public Provident Fund (PPF) account for minors can be opened by their parents or legal guardians to encourage early savings and secure a financial future. The PPF account can be started with a minimal deposit of Rs. 100, but the maximum you can deposit is Rs. 1.5 lakh in a year. The government announces the interest rate on PPF annually, making it a transparent and safe investment option. Once the minor turns 18, the PPF account can be transferred to their name, allowing them to continue enjoying the benefits of this long-term, secure investment.

Here are its key features:

• Transparency in the process. For example, the rate of interest is announced every year by the government.
• Higher rate of interest as compared to other funds.
• Deemed a safe investment since it is run by the government and yields guaranteed results.
• No taxes once it reaches maturity on the contributions made and the interest earned.

Did you know you can get tax deductions up to Rs. 1.5 lakh (annually) on the investments made in PPF? However, note that only one account can avail of this deduction limit of Rs. 1.5 lakhs, either the guardian or the minor.  

Having a PPF account early also encourages youngsters to save money during their first jobs. This approach fosters financial discipline and ensures a substantial corpus for future needs like higher education or other significant expenses. The children can also continue the account even after 18 and thus get the same benefits. 

Minor PPF Account Rules and Eligibility

• The person opening the account should be the natural or legal guardian of the minor in question.
• Only one parent or guardian can open a PPF account in the child’s name.
• The parent or guardian needs to be a resident of India.
• You must mandatorily register a nominee at the time of opening the account.
• The PPF account for minors can be started with a minimal initial deposit of Rs. 100. 
• The maximum amount you can deposit in a year is Rs. 1.5 lakh.
• The funds invested in the minor’s PPF account can be claimed under Section 80C of the Income Tax Act, providing significant tax benefits.
• Premature closure of the minor’s PPF account is allowed only after five years for specific reasons such as medical treatment or higher education of the minor. 

You can look after your child’s PPF account until they are of age, i.e., 18 years. After that, you can apply to change the status (of the child) from minor to major so that the account holder can operate the account from then onwards.   

These provisions make the PPF account a versatile and secure savings option for the child's future financial needs.

 Benefits of opening a PPF account

You can open the PPF account for a minor at any post office or financial institution allowed to open the PPF accounts. A few places offer the option of opening accounts through online websites. Please note that you cannot open a PPF account for a minor jointly.

 Where can you open an account?

Along with a duly-filled application form, you need to attach the following documents: Completed KYC documents of the guardian

• Photograph of the minor
• Age proof of the child, such as the birth certificate or the Aadhar card
• An account-payee cheque for the opening contribution to the PPF account

 Documents requirements for opening a PPF account

1. If the guardian or parent already has a PPF account in their name, then the maximum limit of the amount to be deposited cannot exceed Rs. 1.5 lakh. This means that the total amount in the child and the guardian accounts cannot be more than 1.5 lakh in one financial year.
2. You must also register a nominee while opening the account.
3. Grandparents on either side cannot manage the PPF account of their grandchild unless they are their legal guardians.
4. If the parent/guardian is investing the amount from their income, they can include it under Section 80C of the Income-tax Act to get income tax benefits.
5. From the seventh year onwards, you can make partial withdrawals. If the money you are withdrawing is from the minor’s account, then a declaration needs to be made that you will use it for the minor. You can also take loans from the child’s account, provided the guardian gives the same declaration as before. 

Things to Know Before Opening a PPF Account for Minors

Here are some important points to consider before opening a PPF account for minors:

1. When the minor turns 18, they must apply to have the account transferred from the legal guardian to themselves. This application should include the necessary documents and the signature of the new adult account holder. The guardian who initially opened the account must also sign this application.

2. A PPF account for minors can be closed after five years, but only under specific conditions. The closure is permitted if the withdrawn amount is needed for the medical treatment of the account holder. Additionally, the account can be closed early if the funds are required for the minor's higher education expenses.

3. If the money deposited in the minor's PPF account comes from the parent or guardian’s income, it may be eligible for tax benefits under Section 80C of the Income Tax Act of 1961.

To sum up 

Even though there are other options to contribute, such as equity mutual funds, life insurance, debt funds, etc., they are known for their risky nature. Thus, if you are looking for a financial investment backed by the government and comes with low risk, a PPF account for your minor is the right choice to make. It helps in providing tax benefits for you and helps in securing future milestones in your child’s life. For example, if your goal is to save money for marriage, higher education, or emergency funds – the most convenient fund.

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FAQs

What is the best age to invest in PPF?

For minors, parents may start a PPF account as soon as the child is born to maximise the maturity amount by age 15. For adults, the ideal time to open a PPF account is when they secure their first job. Starting early maximises the power of compounding and ensures long-term financial growth.

Is PPF good for kids?

Yes, the Public Provident Fund is a great savings option for kids. It encourages early financial discipline and provides a secure, long-term investment with tax benefits. By the time the child reaches adulthood, the PPF account will have grown significantly, offering a substantial corpus for higher education or other needs.

What will happen if I deposit more than 1.5 lakh in PPF?

If you deposit more than Rs. 1.5 lakh in a PPF account within a financial year, the excess amount will not earn any interest and won't qualify for tax deductions under Section 80C of the Income Tax Act. The cap ensures disciplined investing while maximising the scheme's benefits.

Is there any risk in PPF?

PPF is considered a risk-free investment backed by the Indian government, ensuring guaranteed returns and full capital protection. It's ideal for conservative investors seeking a safe, reliable investment option. The fixed returns offered by PPF also help diversify an investor’s portfolio, providing stable income without the risks of market fluctuations.

Is it better to pay PPF monthly or yearly?

Depositing in a PPF account between April 1 and April 5 of a financial year maximises interest benefits. If a lump sum deposit at the start of the year isn't possible, making monthly contributions by the 5th of each month ensures you earn the maximum possible interest on your investments.