PPF vs NPS Vatsalya For Minor Children: Which One Is Better, Check Comparison Now

Choosing between the Public Provident Fund (PPF) and the National Pension System (NPS) for minor children involves comparing several factors such as returns, tax benefits, risk, and flexibility.

PPF minor accounts and NPS Vatsalya are investment schemes designed to encourage early savings for children. PPF offers a secure, government-backed option with tax benefits, while NPS Vatsalya provides more investment flexibility within the pension system, both aiming to build a strong financial foundation for the future.

Here’s a detailed comparison to help you decide:

To make the NPS more attractive, Finance Minister Nirmala Sitharaman proposed to start ‘NPS-Vatsalya’, a plan for contribution by parents and guardians for minors.

What Is NPS-Vatsalya?

NPS Vatsalya is a new pension scheme introduced in India’s Union Budget 2024, aimed at helping parents and guardians initiate their child’s retirement savings early. Upon reaching the age of majority, the plan can be seamlessly converted into a regular NPS account.

Although the scheme has been announced, specific details such as eligibility criteria, contribution limits, investment options, and tax benefits are still awaited.

Experts believe that NPS Vatsalya will encourage responsible financial planning and ensure retirement security for future generations.

Sriram Iyer, CEO, HDFC Pension, said, “NPS Vatsalya is a notable innovation. It allows parents or guardians to contribute to a child’s pension from birth, ensuring a strong foundation for future retirement savings through compounded returns.”

Is PPF A Good Option For Minor Children?

The Public Provident Fund (PPF) is a government-supported savings and investment plan in India. Known for its attractive interest rates, tax benefits, and low risk, it is one of the most popular investment avenues in the country.

Individuals can open a PPF account for themselves or on behalf of a minor or someone incapacitated.

Parents can open a PPF account for their minor child, making it a beneficial way to start saving for their future. With its appealing interest rates and tax advantages, the PPF account is a standout investment option for children.

It’s crucial to understand that the PPF account will be managed by the parent or legal guardian until the minor child reaches 18 years of age. Subsequently, upon reaching adulthood, the minor has the option to independently operate the account.

PPF Account: Features

• Investment Limits: A minimum of Rs 500 and a maximum of Rs 1,50,000 can be deposited annually.
• Duration: The original term is 15 years. After this period, it can be extended in blocks of 5 years upon the subscriber’s application.
• Interest Rate: The interest rate is set by the Central Government every quarter. Currently, it stands at 7.10% per annum.
• Loans and Withdrawals: Loans and withdrawals are allowed based on the age of the account and the balances on specified dates.
• Tax Benefits: Investments in PPF accounts qualify for tax deduction under Section 80C of the Income Tax Act, up to Rs 1.5 lakh per financial year.
• Additionally, the interest earned on PPF accounts is tax-free.
• Nomination: Nomination facility is available, allowing the subscriber to nominate one or more persons and define their shares.
• Transferability: The account can be transferred between branches, banks, or post offices upon the subscriber’s request.

Key Things to Know About PPF for Minors

• Eligibility: Any Indian citizen can open a PPF account for a minor child.
• Minimum Age: There is no minimum age limit for the minor; even infants can have a PPF account.
• Account Management: The parent or guardian manages the account until the minor turns 18.
• Investment Limits: The initial deposit and minimum annual contribution are Rs. 500. The maximum investment in a financial year, including the parent’s own PPF contributions, is Rs. 1.5 lakh.
• Tax Benefits: Investments in a minor’s PPF account qualify for tax deductions under Section 80C of the Income Tax Act.
• Maturity: The PPF account matures after 15 years, with the option to extend it in blocks of 5 years.

Things to Remember

• Investment Limit: The subscriber should not deposit more than Rs. 1.5 lakh per annum. Any excess amount will neither earn interest nor be eligible for a tax rebate under the Income Tax Act.
• Deposit Options: The amount can be deposited either in a lump sum or in instalments.
• Interest Calculation: Interest is calculated on the minimum balance in the PPF account between the 5th day and the end of the month and is paid on the 31st of March each year.
• Premature Closure: An account holder can apply for premature closure of their account, or the account of a minor or person of unsound mind for whom they are the guardian, by submitting Form-5 to the accounts office under the following conditions:

1. Life-threatening Disease: For the treatment of a life-threatening disease of the account holder, their spouse, dependent children, or parents, upon providing supporting documents and medical reports from the treating medical authority.

2. Higher Education: For the higher education of the account holder or their dependent children, upon providing documents and fee bills confirming admission to a recognized institute of higher education in India or abroad.

3. Change in Residency Status: Upon the change in the residency status of the account holder, by providing a copy of the passport, visa, or income tax return.

How to Open a PPF Account:

You can open a PPF account at any designated branch of an authorised bank or post office. To do so, follow these steps:

• Fill Out the Account Opening Form: Obtain and complete the PPF account opening form from the bank or post office.
• Submit Required Documents: Provide necessary documents such as ID proof and address proof.

After opening a PPF account, you can make contributions at any time during the financial year. Contributions can be made online via NEFT/RTGS, or in cash at the bank or post office.