Everything You Need to Know About NPS Vatsalya Scheme

NPS stands for National Pension Scheme. The National Pension Scheme (NPS) is a government-backed retirement savings scheme in India. It aims to provide financial security to individuals after retirement by encouraging them to save systematically during their working years. 

Before recent budget announcements, the NPS was primarily available to Indian citizens between the ages of 18 and 65. There was no specific provision for minors to invest directly in NPS accounts. 

However, In Budget 2024, FM announced a new NPS scheme i.e. NPS Vatsalya Through this scheme, minors are now allowed to invest in the NPS. Parents or legal guardians can open an NPS account on behalf of minors. The investment is made in the name of the minor, and the account is managed by the guardian until the minor reaches the age of 18. 

Key Features of NPS Vatsalya Scheme

1. Opening of Account:
   • Parents or guardians can open an NPS Vatsalya account for minor children, who will be the sole beneficiaries.
   • The account will be operated by the parent/guardian exclusively for the child until they turn 18.
2. Minimum & Maximum Investment Amount:

The minimum contribution is Rs.1,000 per year and there is no limit on the maximum contribution.

3. Continuation After Majority:
   • Once the minor turns 18, they can continue the account with the accumulated corpus.
   • The account will transition to an NPS-Tier 1 Account under the All Citizen Model.
4. Pension Retirement Account Number (PRAN):
   • A unique PRAN will be issued by the Central Recordkeeping Agency (CRA) in the name of the minor.
5. Fresh KYC at Age 18:
   • A fresh KYC must be completed within three months of the child turning 18 for the account to remain active.
   • After KYC, the child can fully operate the account.
6. Withdrawal and Exit Options:
   • The scheme allows partial withdrawal and exit options for the account holder.

Eligibility for NPS Scheme Vatsalya

1. Age:
   • Available for Indian citizens below 18 years.
   • Non-resident Indians (NRI) and Overseas Citizens of India (OCI) under 18 are also eligible.
2. Guardianship:
   • Parents or guardians can open and manage the account on behalf of the minor.
   • They will act as nominees under the scheme, with the child being the sole beneficiary.

NPS Vatsalya Benefits:

1. Builds Early Savings Habits: Encourages kids to develop savings habits from an early age as this scheme converts to a standard NPS account at 18.

2. Long-Term Wealth Building: Starting contributions in childhood will allow them to create a huge amount of corpus by retirement, with 60% of the accumulated amount available for withdrawal.

3. Annuity Plan for Retirement: At retirement, 40% of the corpus must be allocated to an annuity, ensuring a steady income stream post-retirement.

4. Teaches Financial Responsibility: By managing their NPS account from adulthood, children learn financial discipline and the importance of investing early.

Withdrawal Rules of NPS Vatsalya

The NPS Vatsalya Scheme allows for partial withdrawals before the child turns 18, under the following conditions:

1. Parents or guardians can withdraw after 3 years of joining the scheme.

2. Up to 25% of the contributed amount can be withdrawn.

3. Withdrawals are allowed a maximum of 3 times before the child turns 18.

4. Withdrawals can be made for specific purposes such as education, treatment of certain illnesses, or in case of a disability exceeding 75%, as per PFRDA guidelines.

Once the child reaches 18, the NPS Vatsalya account is converted into a regular NPS account, which can be managed by the child independently.

Should Parents Invest In This Scheme?

This is one of the options to consider when investing in your child’s future. However, this product comes with its own set of pros and cons. Parents can also explore mutual funds, which offer greater flexibility in terms of how much to invest, when to withdraw, and the expected rate of returns based on different goals.

Before investing in any scheme, make sure that you have created an adequate child education fund, as that is one of the critical goals that will arise before their other goals like retirement. Looking at the rising costs of education it has become essential to invest for your child’s higher education in order to avoid any financial hiccups. 

If you want to start investing for your child’s education then you can check out Lxme’s Child Education Plan which is diversified, well-researched and curated by experts. If you are not sure how much you need to invest then you can try out this Lxme’s Child Education Calculator.

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