Key points to know when opening PPF for a minor child

Due to some apparent benefits, Public Provident Fund overrides all other instruments when it comes to safeguarding your money or getting handsome returns on investments. It also offers tax benefits. The contribution made towards it, the interest earned on it and the amount received on maturity, all are exempt from tax. You can take any debt instrument and compare it with PPF, undoubtedly PPF offers more benefits. Children’s education calls for a dedicated fund meant for it. What could be a better option then a PPF account for this purpose?

PPF account in the name of a minor can be opened with a recognized bank or a post office. Here is a list of things you should know about this minor account:

1. Contribution-The account can be opened with a minimum contribution of Rs.500. Deposits in multiples of 50 is permissible. The maximum contribution that can be made in any fiscal year is limited up to Rs.1.5 lakh. Failure to contribute towards this account after opening the same shall be considered as discontinuation of the same. Partial withdrawal cannot be made from the discontinued account and the holder is not allowed to open another account. Any loan cannot be granted against such an account. The holder can open another account only after maturity/permanent closure of this account. 
2. Eligibility-A minor account can be opened by resident natural or legal guardians. The grandparents after the death of parents, can manage a minor PPF account only if they are the legal guardians. Only one account can be opened with respect to each minor/person of unsound mind by their guardians. The account can be managed by a parent or a legal guardian until the minor account holder attains the age of 18. A nominee must be registered while opening the account. 
3. Required documents-A completed form with details of the guardian and the minor, KYC documents and photograph of the guardian, age proof of the minor which could be a birth certificate or his/her Aadhar card, a photograph of the minor child, along with a cheque being the initial contribution (Rs.500) to open the account shall be required to open the account.  
4. Tax benefits-Under section 80C the maximum limit is Rs.1.50 lakhs in total for contributions made towards a PPF account irrespective of a person contributing individually or along with his or her spouse to the minor’s PPF account. The interest earned in the minor PPF account and the maturity amount both are tax free for the account holder. 
5. Lock-in-period and other rules for withdrawals-No amount of money can be withdrawn, until the expiration of 15 years from the end of the fiscal year in which you make the contribution to the PPF account. However, for the benefit of a minor or a person of unsound mind, the guardian may make a request to the bank or the post office where the account is held for a withdrawal by submitting a certificate to that effect. To extend the account, the guardian must exercise the option before one year from the account’s maturity date. An application can be made by the guardian to the account office in Form-5 in the event of a life-threatening disease, higher education, or a change of address of the account holder, for premature closure of the account. Such closure is allowed only after the completion of five years. Partial withdrawal can be made from the 7^th year of opening the account but the guardian has to make a declaration stating that the money withdrawn is for the use of the minor only. 
6. Extension- By submitting Form-4, deposits by the guardian of the minor/person of unsound mind can be continued after the expiry of fifteen year form the end of the year in which the initial contribution was made. The extension shall be for a further period of five years during which contributions can be made. However, in absence of any such application within a year of the maturity date of the account, contributions cannot be made. 
7. Loan against minor PPF account-After expiration of one year from the date end of the year in which the initial contribution was deposited, a loan application can be made by the account holder. The application should be made in Form 2. The loan is available before the expiry of five years from the end of the year in which the initial subscription was made. It must be shown that the loan amount shall be solely used for the welfare of the minor. The amount of the loan should not be more than 25% of the amount of the account at the end of the second year immediately preceding the year in which the loan is sanctioned. 

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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