In today’s fast-paced world, securing your child’s financial future is more important than ever.

Understanding this need, the Government of India has introduced NPS Vatsalya, an initiative to provide financial security for your minor child.

This scheme offers parents and guardians a reliable way to build a strong financial foundation for their children, ensuring they are well-prepared for future financial needs, such as higher education or other life milestones.

But what exactly is NPS Vatsalya, and who can benefit from this innovative scheme?

In this blog, we will explore everything you need to know about NPS Vatsalya, from its key features to eligibility criteria, and how you can invest in this plan to safeguard your child’s tomorrow.

Whether you’re a parent, grandparent, or guardian, NPS Vatsalya is a step towards a brighter and more secure future for the next generation.

What is NPS Vatsalya?

NPS Vatsalya is a pension scheme that extends the benefits of the regular National Pension System (NPS) to minors.

The scheme allows parents or guardians to open a pension account on behalf of their children under 18 years of age, providing a structured way to invest and secure the child’s financial future.

Through regular contributions, the NPS Vatsalya account aims to build a substantial retirement corpus for the minor, which can later be converted into a regular NPS account upon reaching adulthood.

For a detailed breakdown of how the NPS works, check out this comprehensive analysis: The National Pension Scheme

Who is eligible for NPS Vatsalya?

Eligibility for NPS Vatsalya is straightforward. The scheme is open to Indian citizens below 18 years of age. Here are the specific criteria:

• Minor Account Holders: The NPS Vatsalya account is opened in the minor’s name, with a parent or legal guardian acting as the operator of the account until the minor turns 18.

• How to Open an Account: Parents or guardians can open the account at any Point of Presence (PoP) registered with the Pension Fund Regulatory and Development Authority (PFRDA), including major banks, India Post, and pension funds. It is also possible to open an account online through the e-NPS platform.

• Minimum Contribution: A minimum annual contribution of ₹1,000 is required to keep the account active, but there is no upper limit on the contributions.

Investment options in NPS Vatsalya

Similar to the regular NPS, NPS Vatsalya offers flexibility in investment choices to accommodate various risk tolerances and return expectations. The investment options include:

1. Default Choice: Moderate Life Cycle Fund (LC-50)

• 50% of the contributions are allocated to equity, while the rest is distributed across corporate debt and government securities.

2. Auto Choice

In Auto Choice, the allocation is automatically managed based on the age of the minor, with the following options available:

• Aggressive (LC-75): 75% in equity
• Moderate (LC-50): 50% in equity
• Conservative (LC-25): 25% in equity

3. Active Choice

Here, the guardian has more control and can allocate the investments based on the following limits:

• Equity: Up to 75%
• Corporate Debt: Up to 100%
• Government Securities: Up to 100%
• Alternate Assets: Up to 5%

How to open an NPS Vatsalya account for minors?

Opening an NPS Vatsalya account can be done either through authorized Points of Presence (PoPs) like banks, pension funds, or India Post, or through the online platform eNPS.

The steps include filling out the necessary forms, submitting identification documents for the minor, and selecting the investment options as per the guardian’s preference.

For a comprehensive list of PoPs, you can refer to the official PFRDA website.

Exit, Withdrawal, and Death before 18 years of age

Partial withdrawals from the NPS Vatsalya account are allowed under specific conditions:

• Partial Withdrawal: After a lock-in period of three years, up to 25% of the contributions can be withdrawn for specific purposes such as education, medical treatments, or disabilities. This can be done up to three times before the minor turns 18.

• In case of the minor’s death before the age of 18, the funds will be transferred to the legal heir or nominee as per the applicable rules.

Exit conditions upon reaching 18 years

Upon turning 18, the minor has two options depending on the size of the accumulated corpus:

• Corpus of ₹2.5 Lakhs or More: At least 80% of the accumulated balance must be used to purchase an annuity, while the remaining 20% can be withdrawn as a lump sum.

• Corpus Below ₹2.5 Lakhs: The entire balance can be withdrawn as a lump sum.

Conversion of NPS Vatsalya account at age 18

Once the account holder turns 18, the NPS Vatsalya account is automatically converted into a regular NPS account.

From this point, the individual will have access to all the features of the regular NPS scheme, and the pension can be accessed upon reaching the age of 60.

Tax Benefits

Currently, there are no specific guidelines on the tax benefits applicable to NPS Vatsalya.

However, it is expected that contributions made under the scheme will qualify for the same tax deductions as the regular NPS under Sections 80C and 80CCD (1B) of the Income Tax Act. Official clarification on this is awaited.

Conclusion

NPS Vatsalya is designed to provide a long-term financial cushion for minors by helping parents or guardians set up a pension fund early in life.

While it offers a range of investment options and flexibility, it is important to carefully consider the contribution amounts and withdrawal conditions before committing to the scheme.

As always, prospective investors should stay informed and consult with financial professionals for clarity on individual financial goals.

*Disclaimer – This is for information purposes only and not investment advice. Data credit to the rightful source.