Public Provident Fund (PPF) is a popular low-risk investment option for the long term. Any Indian resident can start investing in PPF. Many parents start PPF on their children’s behalf early in life so that the children can enjoy the benefits after they have grown up.
To earn maximum gains from the investment, it is optimal to be consistent with one’s deposits because PPF works on the ‘power of compounding’. Let’s understand this through an example:
Power of compounding
Suppose you open a PPF account for your five-year-old son. You start with a ₹500 monthly contribution, and then after turning 18, he continues with the same amount until he turns 60. If the average return is 7%, he will accumulate a total value of ₹3,920,693. in the tenure of 55 years.
But suppose he first contributed towards PPF after joining his first job at 22. He will accumulate a total of ₹1,137,341 in the tenure of 38 years till he turns 60.
And even if he doubles the amount and deposits ₹1,000 every month. He will accumulate ₹2,274,682 once he turns 60 at an average of 7% interest. He will still have a smaller corpus despite contributing a higher amount due to the investment tenure which is 38 years in this case as well. This is how starting early and investing consistently will reap maximum benefits.
Points to consider
There are a few points that should be noted before you open an account for your minor. Parents can only manage their child’s account till he/she turns 18 and only one parent can open the account on behalf of the child. A maximum investment of ₹1.5 lakh can be made including investment in both the minor’s and the parent’s own account.
KYC process of the guardian must be completed and validating documents of the child, his/her photograph, and an initial deposit to the PPF account are also required.
Experts advise that to obtain maximum benefits from PPF, one must start as early as possible. Thus, parents can consider investing in a PPF for their minor child. It is a viable option for parents who wish to set up a contingency fund for their children’s education, wedding, etc. after they turn 18.