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Public Provident Fund for Minor: Saving Rs 1 crore with PPF for children – Calculation, tricky rules explained

Rajeev Kumar
ppf account for children

Public Provident Fund for Children: As India celebrates Children’s Day, today is also a good day for you to introduce your child to the world of personal finance. You can start a small investment in the name of your child for his/her future financial needs. There are several options that you can opt for after making an informed decision. Here we take a look at the Public Provident Fund (PPF) option which comes with a set of benefits. Although the return on PPF may not be as high as equity or mutual funds, the absence of risks, healthy interest rate and income tax benefits makes it a popular investment option among people.

In fact, according to latest RBI data, PPF account holders deposited a total of above Rs 1500 crore in PPF in the first two months of 2019. The total outstanding amount with the government in PPF in February this year was Rs 73,014 crore.

PPF deposits enjoy sovereign guarantee. With Public Provident Fund (Amendment Scheme) 2014, the government had increased the maximum deposit limit from Rs 1 lakh/year to Rs 1.5 lakh per year. The PPF rules allow any individual to subscribe to PPF on his own or on behalf of a minor of whom he is the guardian by depositing an amount not less than Rs. 500 and not more than Rs. 1,50,000 in a year.

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"Any individual may, on his own behalf or on behalf of a minor of whom he is the guardian, subscribe to the Public Provident Fund (thereafter referred to as the Fund) any amount not less than Rs. 500 and not more than Rs. 1,50,000 in a year," PPF rules say.

Thus, you can open PPF account in the name of your minor child. However, there are a few tricky points you should know:

  • The total amount deposited by you in PPF accounts in a financial year should not be more than Rs 1.5 lakh. In case you deposit more than this amount in your and your child’s account, interest and tax benefits will be denied on the amount over Rs 1.5 lakh.
  • PPF rules clearly say that you should not deposit more than Rs 1.5 lakh/year in PPF account, even if you have opened accounts in the name of your children.

Premature closure from PPF account in the name of a minor is allowed. For this, the guardian will have to submit a written application to the Account Office. The grounds on which premature withdrawal is allowed include:

  • amount required for treatment of serious ailments or life-threatening disease of the account holder, spouse, or dependent children, or parents, on production of supporting documents from competent medical authority.
  • amount required for higher education of the account holder or the minor account holder, on production of admission in a recognised institute of higher education in India or abroad.
  • The premature closure is allowed only after the account has completed five years.

From the features explained above, it is clear that you can use PPF account to save for your child’s future education needs and health emergencies. Currently, PPF account offers 7.9 per cent, which is compounded annually. Assuming this rate remains, it will take around 25 years to accumulate a corpus of Rs 1 crore by depositing Rs 1.5 lakh per year in PPF account. The PPF account matures after 15 years. Till maturity, one can accumulate over Rs 43 lakh by depositing Rs 1.5 lakh per year. Check chart below:

You can PPF account in post office and several banks.