The scheme is aimed at encouraging early saving and financial planning, while giving investments more time to potentially grow. By starting early, parents can spread their contributions over a longer period instead of waiting until the child is older to begin planning for future financial needs.
What is NPS Vatsalya?
Announced in the Union Budget 2024-25, NPS Vatsalya is an investment scheme for minors and is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
Parents or legal guardians can open an account in the child’s name and contribute until the child turns 18. Relatives and friends can also make contributions as gifts. The money is invested through a pension fund registered with PFRDA, giving the account a market-linked investment component.
How much should you invest?
The account can be opened with a minimum contribution of ₹250, while subsequent contributions also start at ₹250 per year. There is no maximum contribution limit specified under the scheme.
The key advantage is that parents do not necessarily have to begin with a large amount. Regular contributions made over a long period can benefit from the power of compounding.
For example, if a parent starts investing when a child is young, the investment gets several decades to potentially grow. Even increasing the contribution gradually as the child grows can help build a larger corpus over time. The amount you invest in NPS Vatsalya can depend on your child’s age, your financial goal and the time available for the investment to grow.
What happens when the child turns 18?
The account can continue under NPS Vatsalya for up to three more years, until the subscriber turns 21, unless they choose to exit or shift to another applicable NPS model.
After turning 18, the subscriber has to complete fresh KYC and provide nominee details and other required information.
Partial withdrawals are allowed
The scheme also provides limited withdrawal options. After the account has completed three years, up to 25% of the subscriber’s contributions, excluding returns, can be partially withdrawn for specified purposes such as education, treatment of specified illnesses or disability of more than 75%.
Before turning 18, up to two partial withdrawals are permitted. Two additional partial withdrawals can be made between 18 and 21 after completing the required KYC.
What happens if the subscriber exits?
The subscriber can exit after turning 18. On exit, up to 80% of the accumulated corpus can be withdrawn as a lump sum, while the remaining amount is used to purchase an annuity.
If the accumulated corpus is below ₹8 lakh, the entire amount can be withdrawn.
If no decision to exit or shift to another NPS model is made by age 21, the account automatically shifts to NPS under the Multiple Scheme Framework.
Who can open an NPS Vatsalya account?
The scheme is available to Indian citizens below 18, including Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs). The account is opened in the minor’s name and operated by the parent or guardian for the child’s benefit.
