NPS Vatsalya Scheme National Pension Scheme For Minors
- Oct 03, 2024
- In Mentoring and Guidance by Aparna Bose
-National Pension Scheme for Minors
In her Budget 2024 speech, Finance Minister Nirmala Sitharaman proposed a new initiative called NPS Vatsalya. This scheme aims to establish a National Pension Scheme (NPS) specifically for minors, enabling parents to contribute funds on behalf of their children to secure their financial future and build a retirement fund.
NPS Vatsalya allows parents or guardians to make financial investments for their minor children, starting with a minimum contribution of ₹1,000 per year, while imposing no upper limit on contributions. This initiative serves as a valuable means of providing financial support until children are able to earn and invest on their own.
Why Join NPS-Vatsalya?
- Protection against uncertainty and long-term financial security
- Teaching financial responsibility (concept of pension planning)
- Encouragement for long-term investment
- Flexibility in future financial planning
- Benefits of compound interest with long-term investment
Investment Choices
- Active Choice
- Auto Choice LC-75 (Aggressive)
- Auto Choice LC-50 (Moderate)
- Auto Choice LC-75 (Conservative)
*LC- Life Cycle Fund
One of the key advantages of early investment is the power of compounding, which can significantly boost the accumulated corpus over time. For example, when a 25-year-old starts monthly investment of ₹5,000 towards NPS (assuming expected RoR of 10%), her final corpus could be up to ₹1.9 crore. But if this investment had been started when she was 18, her final corpus could be as much as ₹3.9 crore.
Moreover, this initial investment not only secures your child's future but also instils the valuable habit of financial planning and prudent savings.
Withdrawal and Exit Rules of NPS Vatsalya
NPS Vatsalya Scheme provides for partial withdrawal before the child turns 18 years old. The conditions for partial withdrawal from the NPS Vatsalya account are as follows:
Parents or guardians can withdraw after 3 years of joining NPS
They can withdraw up to 25% of contributed amount
Withdrawal option is available only 3 times till the child turns 18
They can withdraw for the purposes of education, disability of more than 75%, treatment of specified illnesses, etc., as specified by the PFRDA .
Once the child reaches the age of majority (18 years), the NPS Vatsalya scheme can be converted into a regular NPS account, which can be managed by the child independently.
However, the subscriber (minor) must do a fresh KYC within 3 months of turning 18 years old. The accrued contribution amount in the NPS Vatsalya amount will be transferred to the standard NPS account.
The child can also choose to exit from the NPS Vatsalya account once he/she turns major instead of converting it to a standard NPS account. The conditions for withdrawal of the NPS Vatsalya account amount upon exit are as follows:
At least 80% of the accumulated corpus is to be re-invested into an annuity plan and the remaining 20% can be withdrawn as a lump sum
If the accumulated corpus is less than Rs.2.5 lakh, the entire amount can be withdrawn as a lump sum
In unfortunate cases of death
- Death of subscriber: Entire corpus returned to guardian (guardian is the nominee)
- Death of guardian: Another guardian to be registered through fresh KYC
- Death of both parents: Legal guardian can continue without making contributions until subscribers attains 18 years of age
How to Open/Apply NPS Vatsalya Scheme?
Parents or guardians can open the NPS Vatsalya Scheme on the eNPS website or through Points of Presence (POPs) which include India Post, major banks, Pension Funds, etc.
The process to open NPS Vatsalya Scheme account online is as follows:
Step 1: Visit the eNPS website.
Step 2: Scroll down and click on ‘Register Now’ option under the ‘NPS Vatsalya (Minors)’ tab.
Step 3: Enter the guardian's date of birth, PAN number, mobile number, and email and click ‘Begin Registration’.
Step 4: Enter the OTP received on the guardian's mobile number and email.
Step 5: Once the OTP is verified, the acknowledgement number will be generated on the screen. Click on ‘Continue’.
Step 6:Enter the minor's and guardian's details, upload the required documents, and click ‘Confirm.’
Step 7: Make the initial contribution of Rs.1,000.
Step 8: The PRAN will be generated and the NPS Vatsalya account will opened in the name of the minor.
Documents for NPS Vatsalya Scheme
The following documents are required to open a NPS Vatsalya Scheme:
- Aadhaar card of the guardian
- Date of birth proof of the minor
- Signature of the guardian
- Scanned copy of passport, in case of NRI subscribers
- Scanned copy of foreign address proof, in case of OCI subscribers
- Scanned copy of bank proof, in case of NRI or OCI subscribers
Benefits of NPS Vatsalya Scheme
The NPS Vatsalya Scheme will promote savings habits in children because when the children turn 18, the account can be converted to a standard NPS scheme. Thus, they can manage it and contribute to the account independently.
The NPS scheme offers portability, i.e., it allows a person to change jobs without any impact on the NPS account. Thus, an NPS Vatsalya account can be converted to an NPS account when the child reaches majority, which can be continued for the child’s lifetime and form a good retirement corpus.
CONCLUSION
The NPS Vatsalya Scheme represents a significant step forward in financial planning for future generations. By enabling parents to invest in a retirement fund for their children from a young age, this initiative not only fosters a culture of savings but also imparts essential financial literacy and responsibility. The flexibility of investment options, diverse withdrawal conditions, and the power of compounding make this scheme an attractive choice for families aiming to secure their children's financial futures.
With a minimum annual contribution of ₹1,000 and no upper limit, parents can tailor their investments according to their financial capability, providing a robust platform for long-term wealth accumulation. Additionally, the ability to convert the NPS Vatsalya account into a standard NPS account upon the child reaching adulthood ensures continuity and a smooth transition into independent financial management.
By promoting early investment habits, the NPS Vatsalya Scheme sets the foundation for children to develop a prudent approach to finances, ensuring they are equipped to face future financial challenges. Ultimately, this initiative not only strengthens individual financial security but also contributes to the economic stability of society as a whole. In an uncertain world, the NPS Vatsalya Scheme offers a beacon of hope for families seeking to build a secure and prosperous future for their children.
Disclaimer: The data and information has been sourced from various domains available to the public. We have taken utmost care to represent the same as factually as has been made available. Please do not make any decisions based on our blogpost. Kindly check the data & information independently. For further guidance on finance and investment please reach out to our experts at Investaffairs.
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