Parents have a deep desire to secure their child’s future and provide financial stability during crucial stages of their lives. One important step towards achieving this goal is opening a Public Provident Fund (PPF) account for their child. PPF is a government-backed savings plan that offers attractive returns and numerous advantages. With the backing of the government, PPF accounts are risk-free and ensure stable returns.
Here are a few reasons why opening a PPF account for your child is beneficial for their long-term financial well-being:
- Lock-in Period: A PPF account has a lock-in period of 15 years. When your child reaches the age of 18, they have the option to either close the account or extend it. By opening a PPF account for your child at a young age, they can avoid the fixed lock-in period and enjoy greater flexibility in withdrawing funds.
- Tax Benefits: Parents can open a PPF account for their child at a bank or post office. The account holder can invest up to Rs 1.5 lakh in a single fiscal year, which is eligible for tax benefits under Section 80C of the Income Tax Act. Contributions to PPF are tax-deductible, and the interest earned and maturity proceeds are tax-free.
- PPF Interest Rate: PPF accounts fall under the Exempt-Exempt-Exempt (EEE) category, making them a risk-free investment option. Currently, the PPF account offers a guaranteed interest rate of 7.1%. Over time, the original investment and the compounded returns can provide significant growth.
- Compounding: The PPF account, supported by the government, is an excellent option for low-risk investments. With a long lock-in period, the original investment amount and the returns earned compound to generate higher proceeds over time.
- Partial Withdrawal: Account holders can make partial withdrawals from their PPF accounts starting from the seventh year, subject to certain terms and conditions outlined in the PPF guidelines. Withdrawal rules for extended PPF accounts may vary.
By opening a PPF account for their child, parents can ensure long-term financial security and provide them with a solid financial foundation. The combination of tax benefits, attractive interest rates, and the flexibility to withdraw funds when needed makes PPF an ideal investment option. It allows children to grow their savings over time and meet future financial needs. It is crucial for parents to plan ahead and consider the benefits of a PPF account for their child’s financial well-being.
