PPF, Sukanya Samriddhi, NPS Vatsalya: when and how much can be withdrawn for your child

With rising inflation, education has become costlier. Many parents begin saving for a child's schooling, higher education or other big expenses soon after the child is born. Parents generally prefer dependable options, and three government schemes are considered the best for this. Some put money in the Public Provident Fund (PPF), some choose the Sukanya Samriddhi Yojana if they have a daughter, and some invest in the NPS Vatsalya scheme.

A small amount is set aside every month or every year so that a large fund is ready by the time the son or daughter turns 18. But starting to invest is not enough. It is equally important to understand when money can be withdrawn from a scheme, how much can be taken out, and what the rules on premature withdrawal are.

Suppose your child is 3 years old and you start investing for them today. The child will be 18 after 15 years. Will the full fund then be available for studies or other needs? The answer depends on which scheme you have chosen, because the withdrawal rules differ across the three.

The first scheme is PPF, which is used for long-term savings. The account matures 15 years after it is opened. So if the account was opened when the child was 3, it can mature after 15 years, when the child turns 18. At that point the full amount in the account can be withdrawn under the rules. There is also an option to extend the account for 5 years if it is to be continued. One thing needs to be kept in mind: only if the account was opened when the child was 3 will the 15 years be complete in the 18th year. If the account was opened later, the full fund may not be available when the child turns 18.

In some circumstances, money can be withdrawn from a PPF account before maturity. Partial withdrawal is allowed after 5 financial years from opening the account, that is, generally from the 7th financial year. Under the rules, up to 50 per cent of the amount within the prescribed limit can be withdrawn, and withdrawal is allowed only once a year.

There is also a provision to close the account prematurely after 5 financial years for specific reasons such as higher education or treatment of a serious illness. In such cases, however, interest may be reduced as per the applicable rules. It is therefore necessary to understand the timing and conditions of withdrawal in advance when investing in PPF.

The second scheme is Sukanya Samriddhi, which is only for daughters. The account matures 21 years after it is opened. So if it was opened when the daughter was 3, the full amount will generally become available when she is 24.

However, for the daughter's higher education, up to 50 per cent of the account balance can be withdrawn under the rules once she turns 18 or after she passes Class 10. Admission-related documents or proof of tuition fees may have to be furnished for this facility. There is also a special provision for withdrawal for the daughter's marriage. The daughter must have completed at least 18 years of age on the date of marriage. If this condition is met, the account can be closed and the full amount withdrawn under the rules. Investors should therefore not assume that the full fund for higher education will be available as soon as the daughter turns 18. The money needed for education, its availability and other financial sources should be planned in advance.

The third scheme is NPS Vatsalya, a long-term retirement savings scheme started for minor children. When the child turns 18, a fresh KYC process has to be completed for the account and nominee details have to be given. After this, responsibility for the account passes to the child, who can take decisions on further investment. After 18, there are three main options. First, continue the NPS Vatsalya account until the age of 21. Second, transfer the accumulated amount to a regular NPS account. Third, withdraw the money under the rules.

According to the information provided, if the amount in the account is less than Rs 8 lakh, the option to withdraw the entire amount in one go may be available. If the amount is Rs 8 lakh or more, a maximum of 80 per cent can be withdrawn as a lump sum, while at least the remaining 20 per cent has to be used to buy an annuity, that is, a plan that pays a regular pension. Even so, the NPS rules and conditions in force at the time of actual withdrawal should be checked.

Money can also be withdrawn from an NPS Vatsalya account before the age of 18 in certain special circumstances. The account must be at least 3 years old for this. For reasons such as education, treatment of illness or disability of more than 75 per cent, up to 25 per cent of the amount contributed by the subscriber can be withdrawn. Returns earned on the investment are not counted in this calculation. Money can be withdrawn at most twice in this way before the age of 18. After that, there may be two more chances to withdraw between the ages of 18 and 21. The relevant rules should be verified for this.

So which scheme should be chosen for children's future? PPF, Sukanya Samriddhi and NPS Vatsalya can each be useful for different needs. Which is best depends on each family's financial position and when the money will be needed. If a full fund is needed for higher education when the son or daughter turns 18, it is not enough to look only at how much interest the scheme pays. It is necessary to check how much can actually be withdrawn at that time, which conditions will apply, and whether there is another fund for the remaining expenses.

Because of rising inflation, the cost of education today may increase considerably in future. Along with regular saving, it is therefore necessary to set financial goals keeping inflation in mind. Plan in advance how much to invest each year, for how many years to keep investing, and when money can be withdrawn if needed. Starting early for children is a good decision, but when choosing the right scheme, understanding the withdrawal rules is as important as the returns. Before investing in any scheme, decide only after checking its latest official rules, eligibility and withdrawal conditions.