Investing for your child's future through PPF? Here's what every parent should know before opening a PPF account

Listen to this article in summarized format For most parents, saving for a child's future begins long before the child even starts schooling. Whether the goal is funding higher education, supporting a wedding, or creating a financial cushion for adulthood, the earlier parents start investing, the more time compounding has to work. Among the many investment options available, the Public Provident Fund (PPF) remains a popular choice because of its attractive interest rate, government backing, tax benefits and long investment horizon. But many parents are unsure whether they should open a separate PPF account for their child. Experts say a child's PPF account can be an effective long-term savings tool, provided parents understand the rules before investing. A PPF account can be opened in the name of a minor, but it cannot be operated independently by the child. “A PPF account can only be opened and operated by the child's parent or legal guardian. Only one guardian can operate one PPF account for the same child at a time, implying that both parents cannot operate separate PPF accounts for the same minor,” says Swati Jain, CEO – Wealth at Arihant Capital Markets, This means both parents cannot separately operate two PPF accounts for the same child, even if they bank with different institutions.

Grandparents also cannot open a PPF account for their grandchild unless they have been legally appointed as the child's guardian. For many families, the biggest attraction of a PPF account is not just safety but time. Since the scheme comes with a 15-year maturity period, money invested during a child's early years has a long runway to benefit from compounding. The long lock-in encourages disciplined investing and helps parents gradually build a corpus for major milestones such as higher education, marriage or other long-term financial goals, says Jain. “One of the most compelling benefits is the tax benefit under the EEE regime, any contributions made qualify for deduction of up to ₹1.5 lakh per financial year as per Section 80C of the Income Tax Act under the old tax regime. However, this 80 C deduction is not available in the new regime,” she adds. Moreover, the interest rate offered on PPF is very attractive and often higher than the interest rates offered on fixed deposits by many banks. The current interest rate on EPF is 7.1%. Many parents assume that each child gets a separate annual investment limit of ₹1.5 lakh. “The ₹1.5 lakh annual contribution limit is not available separately for each child's PPF account. Instead, it applies to the total amount a parent deposits in their own PPF account and the PPF accounts of all their minor children for whom they are the guardians,” says CA Abhishek Soni, CEO and Co-founder of Tax2win.

Suppose a parent contributes ₹1 lakh to their own PPF account and another ₹80,000 across the PPF accounts of two minor children during the same financial year. Although the total contribution is ₹1.8 lakh, only ₹1.5 lakh qualifies under the PPF rules. The excess ₹30,000 does not earn PPF interest and does not qualify for tax benefits. Opening a PPF account in the child's name does not create a separate tax deduction. The deduction under Section 80C in the old tax regime can be claimed by the parent or guardian who actually makes the contribution, provided they are following the old tax regime, according to Soni. "The contribution made to a child's PPF account forms part of the parent's overall Section 80C limit of ₹1.5 lakh. It does not provide any additional deduction beyond this limit," he says. Parents should therefore view a child's PPF account as a way to earmark long-term savings rather than as a means to claim extra tax benefits. PPF is designed as a long-term investment and therefore comes with restrictions on withdrawals. The account has a 15-year maturity period, during which complete withdrawal is generally not permitted, according to Jain. These rules mean parents can access part of the corpus if required, while allowing the remaining amount to continue compounding.

Many parents assume that the account automatically transfers to the child upon attaining adulthood. In reality, some formalities are required. Although the account belongs to the child from the beginning, it is operated by the guardian until the child becomes a major, according to Soni. Only after these formalities are completed can the child independently operate the account, make fresh contributions and submit withdrawal requests. Parents should therefore ensure this transition is completed promptly once the child attains majority. With proper planning, however, a child's PPF account can become a valuable part of a family's long-term financial strategy, allowing savings to grow steadily over time while providing one of the most tax-efficient investment avenues available under the old tax regime. (Join our ETWealth WhatsApp channel for all the latest updates) (Catch all the Personal Finance News, Breaking News, Budget 2025 Events and Latest News Updates on The Economic Times.) Subscribe to ET Prime and read the ET ePaper online.