The Public Provident Fund (PPF) is a government-backed, long-term savings and scheme with guaranteed returns. A top choice when it comes to future proofing your investments, it can be used for goals such as buying a house, children’s education, funding a wedding, as a retirement corpus or even to build wealth.
Investors can easily open a at their nearest bank or post office branch by submitting an application form, along with required KYC documents. There is no minimum age requirement, and parents can choose to open an account for their child, which must be converted into a major account, once the holder turns 18.
Locked in for a period of 15 years, you can choose to extend the tenure of your or your child’s PPF account in five-year blocks, for an indefinite time period, as needed. You can also choose to extend with or without fresh contributions.
Start investments young, give your child an early start
Financial planning experts often note that investing early allows you to slowly and steadily take advantage of the power of to build a sizeable corpus, even with relatively smaller contributions. In comparison, with a late start, you may be forced to stretch beyond your means with monthly or annual contributions to match the same corpus.
For example, if you begin investment from the year your child is a toddler, with long-term view of staying invested for the next 50 years, the monthly amount required to reach crorepati status can go as low as ₹1,900 per month.
Parents can thus safely consider PPF a wealth builder for their child over the long-term future as for them from a young age can give them a leg up on the total PPF corpus accumulated at time of withdrawal (between 50-60 years of age).
Gift your child their PPF account at 18 years of age
Here’s how much total annual contributions of ₹50,000, ₹1 lakh and ₹1.5 lakh (tax free limit each financial year), made either as or monthly credits, can generate for your child over an 18-year period. We calculate —
- ₹1,50,000: Lumpsum investment of ₹1.5 lakh annually for 18 years at interest rate of 7.1% totals to ₹27 lakh and earns interest of more than ₹28.14 lakh, for total maturity corpus of over ₹55.14 lakh at age 18 for your child.
The same ₹1.5 lakh can also be invested as contributions of ₹12,500 each month for a period of 18 years, instead of lumpsum, for the same maturity amount.
As an adult account holder, if they choose to continue the with the same annual or monthly contribution for another 42 years, they will have accumulated ₹75 lakh and earned interest of ₹6 crore, for combined 50-year maturity corpus of over ₹6.75 crore at 60 years of age for retirement.
- ₹1,00,000: Lumpsum investment of ₹1 lakh annually for 18 years at interest rate of 7.1% totals to ₹18 lakh and earns interest of more than ₹18.76 lakh, for total maturity corpus of over ₹36.76 lakh at age 18 for your child.
The same ₹1 lakh can also be invested as contributions of ₹8,340 each month for a period of 18 years, instead of lumpsum, for the similar maturity amount.
As an adult account holder, if they choose to continue the PPF with the same annual or monthly contribution for another 42 years, they will have accumulated ₹50 lakh and earned interest of ₹4 crore, for combined 50-year maturity corpus of over ₹4.50 crore at 60 years of age for .
- ₹50,000: Lumpsum investment of ₹50,000 annually for 18 years at interest rate of 7.1% totals to ₹9 lakh and earns interest of more than ₹9.38 lakh, for total maturity corpus of over ₹18.38 lakh at age 18 for your child.
The same ₹50,000 can also be invested as contributions of ₹4,200 each month for a period of 18 years, instead of lumpsum, for the same .
As an adult account holder, if they choose to continue the PPF with the same annual or monthly contribution for another 42 years, they will have accumulated ₹25 lakh and earned interest of ₹2 crore, for combined 50-year maturity corpus of over ₹2.25 crore at 60 years of age for retirement.
Disclaimer: This story is for educational purposes only. We advise investors to check with certified experts before making any investment decisions.