NPS Vatsalya Scheme Launch: Who Can Invest and How to Open an Account

The NPS Vatsalya scheme, designed specifically for minors, is a new pension initiative that allows parents and guardians to invest a minimum of ₹1,000 annually towards their child's future. Launched on September 18, 2024, by Finance Minister Nirmala Sitharaman, this scheme aims to make pension savings accessible to families of all income levels.

What is the NPS Vatsalya Scheme?

The NPS Vatsalya is a pension scheme introduced in Budget 2024, targeted at securing a child’s future financial needs. By allowing modest annual contributions, the scheme ensures inclusivity and accessibility. Once enrolled, children receive a Permanent Retirement Account Number (PRAN) card as part of their initiation into the National Pension System (NPS).

Eligibility and Account Opening

Indian citizens and guardians of minors are eligible to open an NPS Vatsalya account for their children. Upon reaching the age of 18, the NPS Vatsalya account can be converted into a regular NPS Tier-I account seamlessly.

Investment Options

The NPS Vatsalya scheme offers a variety of investment choices to suit different risk appetites:

• Default Choice: The Moderate Life Cycle Fund (LC-50) with 50% equity exposure.

• Auto Choice: Options range from Aggressive (LC-75) to Conservative (LC-25).

• Active Choice: Guardians can customize fund allocation, including up to 75% equity exposure, and various options for corporate debt, government securities, and alternative assets.

The scheme requires a minimum annual contribution of ₹1,000, with no upper limit on contributions.

Returns and Growth Potential

Based on historical data, investing ₹10,000 annually for 18 years in the NPS Vatsalya scheme can lead to significant wealth accumulation. Here are some examples of potential corpus values at age 60, depending on the rate of return (RoR):

• At 10% RoR: ₹2.75 crore

• At 11.59% RoR: ₹5.97 crore

• At 12.86% RoR: ₹11.05 crore

(Note: These figures are estimates based on historical data and actual returns may vary.)

Death and Succession Rules

In the event of the subscriber's death, the entire corpus is returned to the registered guardian. If the guardian passes away, a new guardian can be appointed through updated KYC. Should both parents die, a legal guardian can either continue contributions or pause them until the child turns 18.

Transition to Regular NPS Account

Upon turning 18, the NPS Vatsalya account transitions into a regular NPS Tier-I Account. Subscribers have several options:

• Continue the Account: Investors can keep contributing beyond age 18 by updating KYC within three months.

• Exit NPS: Subscribers may exit by reinvesting 80% of the corpus into an annuity plan and withdrawing 20% as a lump sum.

• Withdraw Entire Amount: If the total corpus is below ₹2.5 lakh, the entire amount can be withdrawn.

This structured transition ensures a smooth shift from a child-focused pension scheme to a regular NPS account, maintaining financial security and flexibility.

Conclusion

The NPS Vatsalya scheme represents a significant step in fostering financial security for the next generation. By offering a range of investment options and flexible account management features, it aims to provide a robust foundation for children's future financial needs.