Opening a Public Provident Fund (PPF) account for a minor offers several benefits, making it a wise financial decision for their future. Here are some advantages of opening a PPF account for a minor:
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Long-term investment
PPF has a lock-in period of 15 years, which provides a long-term investment horizon. By starting early, the minor's investment can grow significantly over time, helping them build a substantial corpus for important life events.
Tax benefits
Contributions made to the PPF account can take advantage of tax deductions under Section 80C of the Income Tax Act, which is up to a maximum of Rs. 1.5 lakh per financial year. This helps in reducing the tax liability of the parent or guardian while saving for the child's future.
Tax-free returns
The interest earned on the PPF account is tax-free, making it an attractive investment option with no tax implications on the returns.
Compounding effect
PPF offers compound interest, which means the interest earned is added to the principal amount, and subsequent interest is calculated on the total amount. This compounding effect leads to accelerated growth of the investment over time.
Financial security
By investing in a PPF account for a minor, parents or guardians can provide financial security for the child's future needs, such as higher education, marriage, or any other significant expenses.
Low-risk investment
PPF is backed by the government which makes it one of the safest investments with a guaranteed return. The risk of losing the principal amount is minimal.
Flexibility in contributions
While the minimum annual contribution to a PPF account is only Rs. 500, parents or guardians can contribute up to Rs. 1.5 lakh per financial year. They can choose the contribution amount based on their financial capacity.
Nomination facility
The parent or guardian can nominate the minor child to ensure that the investment's benefits pass on to the child in case of any unforeseen event.
Transferability
The PPF account for the minor can be transferred to the child's name once they reach the age of 18, allowing them to take control of their investment and continue its growth.
Inculcating financial discipline
Opening a PPF account for a minor can help inculcate the habit of saving and financial discipline from an early age, teaching them the value of long-term planning and prudent money management.
Overall, opening a PPF account for a minor offers a range of benefits, making it a reliable and beneficial investment avenue to secure the child's financial future. Know more about the do's and don'ts here.
