How many of you know that you can open Public Provident Fund (PPF) accounts in the name of your minor children? This is a fact as opposed to the myth that one must be at least 18 years old to open this account.
As per the Minor PPF account rules, there is no limit to opening a PPF account in the name of your minor child. Now assuming that you open a PPF account in the name of your three-year-old child, let us calculate the corpus accumulated by the time your child turns 18 years old.
Investment amount every year: ₹1,50,000
Investment tenure: 15 years
Interest rate: 7.1%
Investment frequency: Yearly
Invested amount: ₹22,50,000
Total interest earned: ₹18,18,209
Maturity value of the investment: ₹40,68,209
Thinking about how your child will step into adulthood with a corpus exceeding ₹40,00,000 lends an immense sense of satisfaction. You can use this amount to fund your child’s higher education or reinvest the same for another 15 years either in another newly created PPF account or mutual funds depending on your financial goals and risk appetite.
There is no doubt that the same investment made in equities for 15 years would have gained a huge amount. However, there is also an inherent risk component that may refrain you, especially, when you are investing for a purpose. Sudden market crashes may subject may force you to withdraw your investments with depleted earnings.
How does a minor PPF account help?
The one big impediment to parking money in a PPF account is the mandated 15-year lock-in period. This means that if your child opens a PPF account in his or her name at the age of 18, he will be unable to handle the money before he turns 33 years old. Also, time is an important factor in investing, which is why you gain more from investments made early.
Opening a PPF account when your child is still a toddler will go a long way in securing his or her future. Even if you may not be in a position to deposit ₹1,50,000 at the beginning of every year, you may consider making monthly investments up to ₹12,500 every month. The maturity amount calculated would thus be
Monthly investment: ₹12,500
Investment frequency: Monthly
Investment tenure: 15 years
Interest rate: 7.1%
Total investment deposit: ₹22,50,000
Interest earned on investment: ₹16,94,599
Maturity amount: ₹39,44,600
Opening a PPF account early also relieves you from the constant urge to redeem your investments on some pretext. This is because your child would be studying and, therefore, would be under no pressure to extract the amount before maturity.
An upside to investing early in the name of your minor child is that he or she would already be financially secure to some extent even before he starts working. This also leaves the child with the option to pursue a professional qualification whose fees run in lakhs today.
Today’s generation believes in creating jobs than taking one up. Take, for example, Akhilendra Sahu who founded ASTNT Technologies Pvt. Ltd when he was just 17 years old or the more famous Ritesh Agarwal who started OYO Rooms at the age of 27. None of these young entrepreneurs came from rich backgrounds that could fund their dreams. But, a disciplined approach helped them reach where they are today.
While you may shirk away at the idea of opening a PPF account in your minor child’s name, an understanding of how money works to create more money when invested early will help your wards achieve their financial goals early. Though there is a scope for a reduced lock-in period in PPF accounts opened for children, you are advised to continue with your investments throughout the tenure.
The best time to open a PPF account in your ward’s name was yesterday. The best time to open a PPF account in your child’s name is today. You can feel the compounding effect of money only when you invest early and regularly. Invest today and see your money grow multifold with time.
