Public Provident Fund (PPF) is one of the most preferred long-term savings instruments in India, especially for individuals seeking tax benefits and secure returns. When it comes to a PPF account for minors, parents or guardians usually open and manage the account on behalf of the child. A common question that arises is whether parents can make partial withdrawals from such accounts to meet immediate financial needs. In this article, we delve deep into the rules governing partial withdrawals from PPF accounts operated for minors and explore alternative saving options like Bajaj Finance FD, which offers attractive returns and liquidity. We also touch upon related documents such as the EPF passbook that help track your investments systematically.
Understanding PPF account for minors
A PPF account for minors is essentially a PPF account opened in the name of a child below 18 years, operated by a guardian (usually a parent). The guardian manages deposits, withdrawals, and other transactions until the minor attains maturity. PPF accounts have a fixed tenure of 15 years, which can be extended in blocks of 5 years. They offer tax-free returns under Section 80C of the Income Tax Act, making them immensely popular among conservative investors.
The key features include:
– Minimum deposit of Rs. 500 and a maximum of Rs. 1.5 lakh per year
– Fixed 15-year tenure with extensions available
– Interest compounded annually and tax-free
– Withdrawals allowed only after completing 5 years of the account
It stands to reason that, for a minor’s account, the guardian must be well-versed with the withdrawal norms and maturity benefits when planning financial goals like education or marriage.
Partial withdrawals from PPF account for minors: The rules
Parents or guardians can make partial withdrawals from a PPF account for minors, but this is subject to certain predefined conditions outlined by the government. Partial withdrawals are permitted from the 7th financial year after the account opening. For accounts opened on or after 1 April 2016, withdrawal is allowed from the 5th year onwards.
Conditions for partial withdrawal
– Partial withdrawal amount cannot exceed 50% of the balance at the end of the 4th year preceding the year of withdrawal or the immediate previous year, whichever is lower.
– Only one withdrawal per financial year is allowed.
– Withdrawals are permitted only from the 5th year (in case of accounts opened after April 2016).
This rigid withdrawal criterion ensures discipline and long-term savings benefit.
Documents required for withdrawal from minor’s PPF account
To make a partial withdrawal from a minor’s PPF account, the guardian needs to submit specific documents at the bank or post office managing the account. The basic documents include:
– Withdrawal form duly filled and signed by the guardian
– Guardian’s identity proof and address proof
– Minor’s birth certificate or proof of date of birth
– The PPF passbook for record updation
Keep your EPF passbook and PPF passbook updated to track investments and withdrawals effectively. Proper documentation is crucial to avoid delays and ensure seamless transactions.
Alternatives to PPF for minors: Bajaj Finance FD benefits
While PPF offers excellent tax-free returns and security, the lock-in period and limited withdrawal options can be restrictive, especially for sudden financial requirements related to a child’s needs. In such cases, fixed deposits (FDs) like Bajaj Finance FD offer a viable alternative.
Some unique advantages of Bajaj Finance FD are:
– Flexible tenure options starting from 12 months to 60 months
– Attractive interest rates, often higher than traditional bank FDs
– Easy partial withdrawal and premature withdrawal options with minimal penalties
– Regular interest payout options suitable for meeting periodic expenses
Investing in Bajaj Finance FD alongside a PPF account for minors can balance the liquidity and returns expectations, helping parents manage financial goals more efficiently.
Managing minor’s finances with EPF passbook and PPF passbook
For parents acting as guardians, maintaining organized records of all investments is essential. While PPF passbook specifically records all transactions, deposits, and withdrawals relating to the PPF account, the EPF passbook serves a similar purpose for Employee Provident Fund contributions.
Maintaining these passbooks:
– Helps in tracking the corpus built for the minor’s future needs.
– Ensures transparency in managing multiple investments.
– Provides ready proof and documentation for any financial planning or loan applications.
Parents should regularly update and reconcile the balances to have an accurate overview of the minor’s financial assets.
Tax benefits and maturity benefits on PPF for minors
The PPF account offers significant tax benefits under Section 80C with an annual investment limit of Rs. 1.5 lakh. The interest earned and maturity proceeds are exempt from income tax. Therefore, investing in a PPF account for minors ensures tax-efficient wealth accumulation for their future.
On maturity (after 15 years), the amount can be withdrawn in full or extended further. Partial withdrawals, once allowed as discussed earlier, can be strategically timed to fund important milestones like higher education.
In contrast, Bajaj Finance FD interest income is taxable as per the investor’s tax slab but offers superior liquidity and flexible tenure. Hence combining both helps in achieving a balanced financial plan.
How to plan withdrawals prudently from a minor’s PPF account
Given the restrictions on partial withdrawals, parents should strategically plan the investments and use of funds from a PPF account for minors. Some tips include:
– Avoid premature withdrawal to maximize compounding benefits.
– Use partial withdrawals only when absolutely necessary after the lock-in period.
– Maintain a parallel liquid investment like Bajaj Finance FD for emergency needs.
– Keep track of the passbooks, including the EPF passbook if applicable, to have clarity on fund availability.
Being well-informed enables guardians to manage a minor’s finances with discipline and foresight.
Conclusion
A PPF account for minors is a reliable instrument for long-term wealth creation with stringent but fair partial withdrawal rules. Parents and guardians can make limited partial withdrawals only after completing five financial years, with strict limits on the amount to be withdrawn. To meet short-term and mid-term liquidity needs, investing in alternatives like Bajaj Finance FD is prudent, offering flexibility alongside attractive returns. Keeping the EPF passbook and PPF passbook updated ensures smooth financial management and accurate records. Combining PPF accounts with fixed deposits like Bajaj Finance FD can provide a perfect blend of growth, tax benefits, and liquidity for securing your child’s financial future efficiently.
Please note: Bajaj Finance does not offer Tax saving FDs.
