As children grow up, the expenses for their education and further career also increase rapidly. In such a situation, every parent thinks about where to deposit money for their children, which is safe and can be used as a huge amount when the time comes. If you want to avoid the ups and downs of the stock market, then the government’s Public Provident Fund (PPF) scheme is the best and safest option for you. If you deposit only Rs 5,000 every month in this account in the name of your child, then after 15 years you will have a fund of more than Rs 16 lakh.
How to make Rs 16 lakh by investing Rs 5,000 per month?
The mathematics of PPF is very simple. Suppose, you deposit Rs 5,000 every month in your child’s PPF account from today itself. According to this, you will deposit Rs 60,000 in a year. Currently the government is giving 7.1 percent annual interest on PPF.
If the same interest rate remains for 15 years, then you will deposit a total of Rs 9 lakh from your pocket in these years. Now the magic of interest happens here. On this amount of Rs 9 lakh, you will get interest of about Rs 7,27,284. That means after 15 years, when the account matures, you will have a lump sum amount of approximately Rs 16,27,284 in your hand. Just keep one thing in mind that the government checks the interest rates of PPF every three months, so there may be a slight difference in the final amount.
Keep in mind the limit while opening a child’s account
Any parent can easily open a PPF account in the name of their minor child. But, a very important rule of income tax applies in this. The rule is that more than Rs 1.5 lakh cannot be deposited in a year in both your own PPF account and your child’s PPF account.
If you are already depositing Rs 1.5 lakh per year in your account, then you will not be able to deposit money separately in the account in the name of the child in the same year. Therefore, keep this limit in mind while depositing money.
full tax exemption
The best thing about PPF is that there is no tax hassle in it. The money you deposit gets tax exemption under Section 80C. Apart from this, the government does not deduct even a single rupee tax on the interest that is added to the account every year and the entire amount that you get after 15 years.
Along with this, one gets the benefit of compounding interest in PPF. That means interest is added on your interest also. If you do not need money even after 15 years, then you can extend this account for the next 5 years by filling a form. This will create a huge fund by the time the child goes to college.
Is this the right choice for your child?
If you want to save money for a short period like 2-4 years, then do not put money in PPF because the rules for withdrawing money from it are very strict. PPF is a long race horse. If your aim is to create a big fund for your child’s higher education, college fees or to settle his career after 15 years, then this is the most reliable method without any risk.
