How to Open a PPF Account for Minors?
The public provident fund (PPF) is one of the most popular investment schemes in India. Indians trust the time-tested scheme with their hard-earned money to build a corpus according to their goals.
The PPF was first introduced by the central government in 1968, to give commoners a way to convert their smaller deposits into a large corpus. This was mainly aimed at private-sector employees and self-employed individuals who didn’t have a federal pension scheme by default. The long-term lock-in period ensures the fund can be effectively used for wealth creation in the long term.
Further pleasing the Indian palate, PPF is also a low-risk investment option.
But all the benefits discussed so far are targeted at adults who earn a living. What if a parent wants to create a corpus for their child in the long term? Does PPF allow minors to open an account in this regard? If so, does it have different interest rates? Let us explore in detail PPF accounts for minors and discuss its benefits and limitations.
PPF Scheme Overview
Before we discuss the PPF account for minors, let us understand what PPF is.
A PPF is an investment scheme offered by the central government. The voluntary scheme allows you to create a corpus through regular investments.
PPF is considered a conservative investment option. It is not market linked. Instead, you receive a fixed interest rate for the money you invest.
This interest rate is fixed by the government and is announced every quarter. In the July – September 2022 period, the interest rate is 7.1%. This is comparable to the interest rates of other conservative options, such as fixed deposits (FDs).
This ensures there is almost zero risk associated with a PPF account. Hence, it works the best for conservative investors. PPF has a lock-in period till maturity of 15 years. While there are options for you to withdraw parts of the corpus before this period under certain circumstances, complete withdrawal is allowed only at maturity.
PPF for minors overview
You can open a PPF account for minors, but with the backing of a parent. The parent has to open the account for the minor and oversee the processes. Please note that the PPF account for minors can only be run through the parents. That means if the parent has an untimely demise, the account cannot be continued and will be withdrawn. The corpus will be given to the child in this scenario.
Objective of PPF Account for Minors
The PPF was created to enable commoners to convert their small savings into a larger corpus with fixed interest returns and tax benefits. The same is the case with minors: Opening a PPF account for minors gives them a considerable corpus.
Savings from PPF could be especially beneficial for gifted children. Even if, unfortunately, you are unable to be there for them when they have to make a decision, especially regarding their education, such a fund will provide them with ease of finance, helping them choose based on their interest.
The scheme has a maturity of 15 years. For instance, if you start investing in PPF before the child turns 16, they will have a corpus that could help them choose their stream of study without you worrying much about financing the same.
Eligibility and PPF Age Limit
There are some minor PPF account rules that restrict your eligibility to open such an account. Let us now check the eligibility and age criteria for PPF for minors:
● A minor cannot open a PPF account on his/her own. Instead, a legal guardian, who is, in most cases, a parent, should oversee the procedure and open the account in the minor’s name.
● Only one of the parents can open the account. Two PPF accounts are not allowed for an individual.
● In the event that the child has no parents, only the legal guardian can open a PPF account in the minor’s name. Not even grandparents can operate his/her PPF account unless they are legal guardians.
● A nominee must be added to the PPF plan of the minor as well. The corpus built will go to them if something unfortunate happens to the child. If the guardian who opened the account for the child passes away before maturity, the account will be closed, and the corpus will be given to the child or their legal guardian.
● You can contribute a minimum of Rs.500 and a maximum of Rs.1.5 lakh per year in the PPF account for the minor. But if you have another PPF account, you can only invest Rs. 1.5 lakh collectively. That means the contribution to your PPF plus the contribution to your minor’s PPF should be not more than Rs. 1.5 lakh.
How to Open a PPF Account for Minors?
You might be looking for the steps to open a PPF account for minors. Here are these:
Step 1 – Visit a point of presence of your preference. This could be a bank branch or a post office.
Step 2 – Collect the PPF account opening form. You can also download the form online prior to the branch visit from the respective bank’s website.
Step 3 – Fill out the PPF form carefully by ensuring that you fill in the correct information. Keep your identity and address proof handy to make sure that the process goes smoothly.
Step 4 – Decide the amount you want to invest initially and enter that in the form. The minimum deposit is Rs. 500. However, you can invest up to Rs. 1.5 lakh per year in PPF.
Step 5 – Submit the filled-out form to the bank or post office and invest the initial amount. You will also receive a passbook instantly.
Alternatively, some banks allow you to open a PPF account online if you already have a relationship with them. The process for doing the same differs for different banks.
Documents Required to Open a Minor’s PPF Account
Opening a PPF for minors requires the following documents:
● Address proof of the minor and guardian
● Identity proof of the minor and guardian
● PAN cards of the minor and guardian
●Age proof of the minor
● Documents proving legal guardianship
● A cheque for the initial contribution
Here, address and identity proofs could include:
● Voter’s ID
● Ration card
● Aadhaar card
Along with this, the PAN card (of the adult) is a mandatory document.
Consideration Before Opening PPF Account for Minors
Opening a PPF account for your minor is a very wise decision to take, thanks to the myriad benefits this federal-backed scheme offers.
However, for the benefit of the doubt, you must consider the following before opening a PPF account:
● You can claim tax benefits even if the PF account is in your child’s name. Your contribution towards the PPF account is deductible for up to Rs. 1.5 lakh per annum.
● When the minor turns 18, the PPF account should be transferred to his/her name by submitting an application in the home branch along with the documents proving the age and agreement of both the guardian and the child.
● A depositor may also be allowed to close the minor’s account under certain circumstances. But this facility is advanced after five years of investment. The withdrawal fund should be used for the child’s needs. This can be a medical or an educational need.
● The depositor can also take a loan from the PPF account for the child’s needs.
● A minor’s PPF account can be opened with a minimum deposit of Rs. 100. But the minimum investment for a financial year should be Rs. 500. The maximum limit for the same is Rs.1.5 lakh.
The PPF plan was created with the intention of generating savings by providing an investment with respectable returns and income tax advantages. Given that the central government guarantees PPF investments, they are thought to be secure.
On these lines, the PPF account can be a beneficial choice for children. The longer the tenure, the higher the fund will grow. This corpus can act as an emergency fund for the children, among many other needs. Follow the above pointers to open a PPF account for minors today.
What is the minimum age requirement for PPF?
There are no minimum age requirements for PPF. All you need is proper identification and address proof. But if the account holder is under 18, a parent or legal guardian should open the account on his/her behalf.
What happens when a minor PPF account holder turns 18?
When the minor PPF account holder turns 18, the account cannot be continued as is. Instead, the guardian, along with the account holder, should file a request for transfer. Both the account holder and the guardian should be present for this process.
Can we withdraw money from the PPF for minors?
The depositor can withdraw from the PPF corpus for the minor, but only from the 7th year of opening the account. This money should be used only for the needs of the minor, and the guardian will have to make sure of the same. On occasion, supporting documents may also be asked for as part of the withdrawal process.
Can I close a minor’s PPF account?
Yes, you can close the minor’s PPF account only if there is a need for the education of the child. The depositor will be asked to furnish supporting documents for the same while closing.