Union Finance Minister Nirmala Sitharaman is introducing a new scheme under the National Pension System (NPS) called NPS Vatsalya.
The scheme, announced during the Budget in July 2024, is designed for parents and guardians to make long-term investments for their minor children.
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Managed by the Pension Fund Regulatory and Development Authority (PFRDA), NPS Vatsalya aims to provide a secure future for minors by allowing them to accumulate retirement savings.
The NPS Vatsalya scheme is open to all Indian citizens and Non-Resident Indians (NRIs), enabling them to open accounts for their minor children.
Legal guardians can also start an account in the child’s name. When the child turns 18, the account can be converted into a regular NPS account, providing the potential to build a significant retirement fund.
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Key details about NPS Vatsalya scheme
During the Budget 2024, Finance Minister Sitharaman explained the scheme, saying, “NPS-Vatsalya, a plan for contributions by parents and guardians for minors, will be introduced. Upon reaching the age of majority, the plan can be seamlessly converted into a regular NPS account.”
Here are the key points to know about the NPS Vatsalya scheme:
Minimum contribution: A minimum annual contribution of Rs 1,000 is required, as per the Central Bank of India. There is no maximum contribution limit.
Long-term investment: Parents can start saving for their child’s retirement from infancy, benefiting from the power of compounding over time. Contributions can be made with as little as Rs 500 per month or Rs 6,000 annually.
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Investment options:
Default choice: The default option is the Moderate Life Cycle Fund (LC-50), which allocates 50% to equity.
Auto choice: Guardians can select from different Life Cycle Funds, including:
Aggressive LC-75 (75% equity)
Moderate LC-50 (50% equity)
Conservative LC-25 (25% equity)
Active choice: This option allows guardians to actively choose how funds are distributed across various assets, such as equity (up to 75%), corporate debt (up to 100%), government securities (up to 100%), and alternate assets (up to 5%).
Partial withdrawal rule: After three years, partial withdrawals of up to 25% of the corpus are allowed for specific purposes, such as education, medical treatment, or severe disability. Subscribers can access this facility up to three times before turning 18.
Maturity at 18 years: Once the child reaches 18, the account matures. If the corpus is Rs 2.5 lakh or less, it can be withdrawn in full. If the amount exceeds Rs 2.5 lakh, 20% can be withdrawn as a lump sum, while the remaining 80% must be used to purchase an annuity for regular income.
The account can also be extended beyond 18 years, converting into a regular NPS Tier-I account. A fresh KYC process will be required within three months of the child turning 18.
