Union Finance Minister Nirmala Sitharaman has introduced a new initiative under the National Pension System (NPS) called NPS Vatsalya.
Launched during the July 2024 Budget, this scheme allows parents and guardians to make long-term investments for their minor children, ensuring financial security for their future.
NPS Vatsalya, managed by the Pension Fund Regulatory and Development Authority (PFRDA), helps minors accumulate retirement savings over time, offering a stable financial foundation.
This scheme is available to both Indian citizens and Non-Resident Indians (NRIs), allowing them to open NPS accounts for their minor children. Legal guardians can also open accounts on behalf of the child. Once the child reaches 18, the account can be converted into a regular NPS account, allowing further growth towards a solid retirement fund.
What is NPS Vatsalya?
NPS Vatsalya is a new scheme introduced by Union Finance Minister Nirmala Sitharaman in the budget speech. It is designed to help parents secure their children’s future by investing in a pension account, enabling long-term wealth growth through compounding.
The scheme offers flexible contribution options, allowing parents to start with as little as Rs. 1,000 annually in their child’s name. This makes it accessible to families across different income levels.
NPS Vatsalya aims to promote early financial planning for children’s futures and is managed by the Pension Fund Regulatory and Development Authority (PFRDA), playing a vital role in India’s pension system.
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Key Details of NPS Vatsalya
In Budget 2024, Finance Minister Nirmala Sitharaman announced the NPS Vatsalya scheme, a new plan that allows parents or guardians to contribute to a minor’s NPS account. Once the child reaches 18, the account can easily be converted into a regular NPS account.
The following are key details of the NPS Vatsalya scheme:
Minimum Contribution:
The Central Bank of India requires a minimum yearly contribution of Rs 1,000, with no upper limit.
Long-Term Investment Opportunity:
Parents can start saving for their child’s retirement right from infancy, taking advantage of compounding benefits over time. Contributions can begin as low as Rs 500 per month or Rs 6,000 per year.
Investment Choices:
Default Option:
The default choice is the Moderate Life Cycle Fund (LC-50), which invests 50% in equities.
Auto Choice:
Guardians can select from three Life Cycle Funds based on risk tolerance:
- Aggressive LC-75: 75% equity
- Moderate LC-50: 50% equity
- Conservative LC-25: 25% equity
Active Choice:
Guardians can manually decide how to allocate funds across assets like:
- Up to 75% in equities
- Up to 100% in corporate debt
- Up to 100% in government securities
- Up to 5% in alternative assets
Partial Withdrawals:
After three years, subscribers can make partial withdrawals of up to 25% for specific needs like education, medical expenses, or disability. This can be done up to three times before the child turns 18.
Maturity at Age 18:
When the child turns 18, the account matures. If the corpus is under Rs 2.5 lakh, the entire amount can be withdrawn. For amounts over Rs 2.5 lakh, 20% can be taken as a lump sum, and the remaining 80% must be used to purchase an annuity for regular income. The account can also be converted into a regular NPS Tier-I account, with a new KYC process required within three months of the child turning 18.
This scheme provides a flexible and structured way to save for a child’s future while offering tax benefits and long-term financial security.
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NPS Vatsalya FAQs
Q.1. What is NPS Vatsalya?
Ans. NPS Vatsalya is a pension scheme introduced in Budget 2024, allowing parents or guardians to invest in a minor’s future and convert the account into a regular NPS when the child turns 18.
Q.2. Who can open an NPS Vatsalya account?
Ans. Indian citizens, NRIs, and legal guardians can open an NPS Vatsalya account for their minor children.
Q.3. What is the minimum contribution for NPS Vatsalya?
Ans. The minimum contribution is Rs 1,000 annually, with no upper limit on how much can be invested.
Q.4. Can partial withdrawals be made before the child turns 18?
Ans. Yes, partial withdrawals of up to 25% of the corpus can be made after three years for education, medical treatment, or severe disability.
Q.5. What happens to the account when the child turns 18?
Ans. The account matures when the child turns 18. If the corpus exceeds Rs 2.5 lakh, 20% can be withdrawn as a lump sum, while the rest is used to purchase an annuity.
