PPF: Major benefit from minor account

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In a declining interest-rate regime, it is a challenge to find a secure and guaranteed instrument that gives a rate of return more than the rate of inflation. Public Provident Fund (PPF) is one such instrument that has won the trust of millions of middle-class citizens that offers complete security. Moreover, its return at 7.1% exceeds average inflation, which, in other words, means capital appreciates in real terms. The real attraction, however, lies in the fact that the entire corpus is free from income tax irrespective of the amount of interest or principal and the tenure of the investment.

Recently, the finance ministry has made a few changes in PPF rules, one of which holds out significance in the life of a common citizen. One can deposit money in the account of the minor and the amount would continue to earn interest at the prevailing rate prescribed by the government. But according to the rules, the account of the minor would not earn any tax benefit for the parent/guardian.

Even if tax breaks are not allowed, the accumulation of interest at the rate of 7.1% would result in the accumulation of a substantial sum by the time the minor becomes an adult. Once the adult starts depositing money, he/she would also start getting tax breaks. If all the amount deposited in the account during the entire tenure is taken into consideration, it would result in a considerable sum which would be of great help in the financial planning of that individual. If a parent opens a PPF account for a kid when he/she is five years old, the account would have earned interest for 13 years when he/she turns an adult. If the account is continued till the individual is 60 years old, it would have run for 55 years. The resultant amount would be a pretty sum, especially with the benefits of tax breaks that an adult would be entitled to.