Investing for your child? Open a PPF account in her name

6 MinsMay 10, 2022

When it comes to their children, parents always want the best. Be it a comfortable lifestyle, higher education or a grand wedding. But achieving these goals requires proper planning.  If you have a young child and are looking to provide for her future needs, consider opening a Public Provident Fund (PPF) Account now. You can make systematic contributions over the years and build a sizeable corpus to meet all the goals.

Open a PPF Account in Your Child’s Name

If you are a parent or a legal guardian and a resident of India, you can open the PPF account in your minor child’s name. Plus, you can operate your child’s PPF Account until she turns 18 years. However, in this case, the PPF Account will be only in your child's name; joint holding is not permitted. This is because, as per rules, only one PPF account is allowed per individual.

There is no restriction on the age limit to open a minor’s PPF Account. You can open the account at a branch of authorised banks by filling in ‘Form 1’ (earlier referred to as ‘Form A’). Axis Bank is one of the authorised banks to open a PPF account.

Documents required to open a PPF Account in your minor child’s name:

  • Address proof (Valid Passport, permanent Driving License, Voter Id, Aadhaar, Ration Card, etc.)
  • Identity proof (Permanent Account Number (PAN) card, Aadhaar, Voter Id, valid Passport, permanent Driving License, etc.)
  • Birth Certificate of the minor child
  • 1 passport size photograph
  • Initial contribution cheque of Rs 500 or more

Once you complete all the formalities, a PPF Account passbook will be issued in the minor child’s name. 

Also, draw up a budget to find out how much you are spending and where. This will help curtail unnecessary expenses. 

[Also Read Five reasons why you should open a PPF account]

You can invest in your child’s PPF account annually, bi-annually, quarterly, or in 12 monthly instalments in a financial year. If you invest for the entire lock-in period of 15 years you can build a safe, secured, and sizeable corpus for your child’s future needs. This could be her higher education expenses, wedding expenses, etc. Let’s see with an illustration. If you open a PPF Account for your minor daughter and contribute Rs 10,000 every month, at the end of the maturity period, your corpus would be Rs 32 lakh.  Use Axis Bank’s PPF calculator to know how much the amount will be at maturity –– the investment + interest.

Minor's PPF Account
Age of the Child at the time of A/c Opening (Yrs.)3
Age of the Child at maturity (Yrs.)18
Monthly Contributions until maturity (in Rs)10,000
Investment Tenure (Yrs.)15
Interest Rate on PPF A/c*7.10%
Corpus Built at the end of maturity (in Rs)3,216,241

*The interest rate is currently 7.1% p.a. The calculation is done assuming you get such a return on an average basis during the maturity period. But the interest rate may change every quarter
(Note: For illustration purposes only)

The important thing to keep in mind is that the interest earned on the PPF Account is calculated on the minimum balance in your account between the 5th and the last day of every month. So, if you are planning to invest monthly, make sure your PPF account is credited with the investment amount on or before the 5th of every month, to get the maximum benefit. Or else you would lose out on the additional interest in that particular month. 

At the end of the maturity period, you have three choices: 

  • Withdraw the maturity amount and close the account by applying in ‘Form 3’ (earlier referred to as ‘Form C’) and furnish the passbook of the account.
  • Extend the PPF Account for a block of 5 years and make fresh contributions by applying in ‘Form 4’ (earlier referred to as ‘Form H’) for extension within one year from the maturity date.
  • Extend the PPF Account for a block of 5 years without making fresh contributions. This will earn interest on only the accumulated balance in the account.
  • You may choose any of the above options at maturity depending on whether you need the money immediately to fund a particular goal and/or your liquidity needs.

Other benefits of a PPF account: 

Favourable E-E-E tax status - The contributions made into the minor’s PPF Account are eligible for a deduction of up to Rs 1.50 lakh under Section 80C of the Income Tax Act, 1961. Besides, the interest earned and the maturity proceeds are also exempt from income tax. Even partial withdrawals from PPF Account (which are permitted subject to fulfilling certain conditions) are exempt from tax.
But if you have a separate PPF Account in your name, the available deduction limit remains at Rs 1.50 lakh.

Loan against PPF Account - Say you need the money for some reason before the maturity of the PPF Account, you can avail of a loan at any time from the third financial year till the end of the sixth financial year. 

PPF Account cannot be attached in case of debt - Unlike other investment avenues, the PPF account cannot be attached by the order or decree of the court in case of any debt or liabilities, as per the PPF rulebook. 

Ideally, open a PPF Account when your child is 2 or 3 years of age. The guaranteed returns and ease of investing make it an apt tool to build wealth over the long term.

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision