Why you should open a PPF for your minor child
Premium- Only one of the parents can open a PPF account on behalf of a minor, and they need to be resident Indians
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.
To understand why consistency is essential, let's look at an example. Suppose you open a PPF account for your 10-year-old daughter. You start with a ₹500 monthly contribution, and then she continues with the same amount until she turns 60. If the average return is 7%, she will accumulate a corpus of ₹27,86,658. The investment tenure, in this case, will be 50 years.
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But suppose her first contribution towards PPF is after joining her first job at 22. Instead of ₹500, she contributes ₹1,000 monthly (double the amount). She will accumulate ₹23,72,635 once she turns 60 at an average 7% interest. The investment tenure, in this case, will be 38 years. She will still have a smaller corpus despite contributing a higher amount due to the investment tenure.
That's the power of compounding or starting out early.
Here are few other things that you should keep in mind when opening a PPF account for a minor.
Only one of the parents can open a PPF account on behalf of a minor, and they need to be resident Indians.
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 child, and a cheque for the initial contribution to the PPF account is also required.
Parents can manage the PPF account of a minor until he or she turns 18.
The parent or legal guardian can contribute up to ₹1.5 lakh in a financial year on behalf of the child. However, the deposit in a minor account is clubbed with the deposit of the guardian's account for the limit of ₹1.5 lakh. It means you have to split the overall ₹1.5 lakh limit between you and your child.
(Do you have personal finance queries? Send them to mintmoney@livemint.com and get them answered by industry experts)
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