What is NPS Vatsalya Scheme?
Budget 2024 introduced the NPS Vatsalya Scheme, a specialized National Pension Scheme (NPS) designed for minors. This plan lets parents and guardians start saving for their children's retirement early. You can contribute monthly or yearly until your child turns 18, with a minimum contribution of Rs. 1,000 per year and no maximum limit. The Pension Fund Regulatory Authority of India (PFRDA) oversees the scheme, which is a kid-friendly version of the regular NPS. The goal? To help young people build long-term financial security and get into the habit of saving for retirement. It's a great way for parents to give their children a head start and teach them the importance of saving. Since the government's NPS program is all about providing retirement income, the NPS Vatsalya Scheme is a fantastic option for ensuring a child's financial well-being.
Features of NPS Vatsalya Scheme
Setting up an NPS Vatsalya account for your child is simple! You, as the parent or guardian, will open the account, and your child will be the one who benefits. You'll manage the account until your child turns 18. Once they reach adulthood, the account becomes theirs, and they can handle the savings. The account will then be moved to a regular NPS account (Tier 1 - All Citizen Model) or another suitable non-NPS scheme. Your child will get their own special PRAN (Pension Retirement Account Number) from the Central Recordkeeping Agency. When your child turns 18, they'll need to complete a new KYC process within three months. After that, they're in charge! You only need to contribute at least Rs. 1,000 per year, but you can contribute much more if you want. The first contribution is also Rs. 1,000. And, importantly, the NPS Vatsalya Scheme allows for partial withdrawals and exiting the scheme under certain conditions.
Who is Eligible for NPS Vatsalya Scheme?
Followings can Opt for the NPS Vatsalya Scheme:
- Indian citizens under 18 years of age.
- Non-Resident Indians (NRIs) and Overseas Citizens of India (OCI) under 18 years.
- A parent or guardian can open and operate the account on behalf of a minor.
- The child will be the sole beneficiary, while the parent or guardian will act as the nominee under the scheme.
How to open Account under NPS Vatsalya Sceheme
Parents or guardians can open an NPS Vatsalya Scheme account for a minor either online through the eNPS website or offline through Points of Presence (POPs) like India Post, major banks, and Pension Funds.
To open the account online:
- Go to the eNPS website.
- Under the "NPS Vatsalya (Minors)" tab, click "Register Now."
- Enter the guardian's date of birth, PAN, mobile number, and email address, then click "Begin Registration."
- Enter the OTP received on the guardian's mobile and email.
- After OTP verification, an acknowledgment number will be displayed. Click "Continue."
- Enter the minor's and guardian's details, upload the required documents, and click "Confirm."
- Make the initial contribution of ₹1,000.
- Complete the dual OTP or eSign authentication.
- The Permanent Retirement Account Number (PRAN) will be generated, and the NPS Vatsalya account will be opened in the minor's name.
What are the Documents needed for opening Account under NPS Vatsalya Scheme?
To open an NPS Vatsalya Scheme account, the following documents are required:
- Guardian’s KYC Documents: Aadhaar card, passport, driving license, NREGA job card, voter ID, or National Population Register documents.
- Guardian’s PAN Card.
- Minor’s Date of Birth Proof: PAN card, birth certificate, matriculation certificate, school leaving certificate, or passport.
- Guardian’s Signature.
- For NRI Applicants: A scanned copy of the passport.
- For OCI Applicants: A scanned copy of foreign address proof.
- For NRI/OCI Subscribers: An NRE/NRO bank account in the minor’s name.
Investment Options under NPS Vatsalya Scheme
While 50% of investments are allocated towards equities by default, guardians can choose from different life cycle funds as follows:
Auto Choice: Parents can opt for a pre-set investment strategy based on risk preference:
- Aggressive Lifecycle Fund (LC-75): 75% equity exposure.
- Moderate Lifecycle Fund (LC-50): 50% equity exposure.
- Conservative Lifecycle Fund (LC-25): 25% equity exposure.
Active Choice: Parents have the flexibility to customize the investment mix, allocating funds as follows:
- Equity: Up to 75%
- Government securities: Up to 100%
- Corporate debt: Up to 100%
- Alternate assets: Up to 5%
What are the Withdrawl and Exit rules under NPS Vatsalya Scheme?
The NPS Vatsalya Scheme allows for partial withdrawals before the child turns 18, subject to the following conditions:
- Withdrawals are permitted after three years of joining the NPS.
- A maximum of 25% of the contributed amount can be withdrawn.
- This option is available only three times before the child reaches 18.
- Withdrawals are allowed for specific reasons, such as education, disability exceeding 75%, and treatment of specified illnesses, as defined by the PFRDA.
Upon the child turning 18, the NPS Vatsalya Scheme can be converted into a regular NPS account, which the now-adult child can manage independently. A fresh KYC must be completed within three months of the child's 18th birthday. The collected funds in the NPS Vatsalya account will be transferred to the standard NPS account.
Alternatively, the child can choose to exit the NPS Vatsalya account at age 18. In this case:
- At least 80% of the accumulated corpus must be reinvested in an annuity plan, with the remaining 20% available as a lump sum withdrawal.
- If the total corpus is less than ₹2.5 lakh, the total amount can be withdrawn as a lump sum.
In the unfortunate event of:
- Death of the child: The entire corpus will be paid to the guardian (nominee).
- Death of the guardian: A new guardian must be registered through a fresh KYC.
- Death of both parents: The child's legal guardian can continue the scheme without further contributions until the child turns 18.
Benefits of NPS Vatsalya Scheme
NPS Vatsalya Scheme is beneficial for children’s financial well-being once they retire; the following are all the benefits this scheme offers:
- By starting early, the scheme encourages children to develop strong savings habits, setting them up for future financial responsibility. The seamless transition to a standard NPS account at age 18 allows them to continue contributing and managing their retirement savings.
- Early contributions, even small ones, benefit significantly from the power of compounding, leading to a substantial retirement corpus. The scheme provides a solid foundation for a comfortable retirement, with the option to withdraw a lump sum (up to 60%) and invest the remainder in an annuity.
- The NPS Vatsalya Scheme introduces children to the concept of pensions and long-term financial planning, fostering financial literacy from a young age.
- Like a standard NPS account, the transitioned account offers portability, allowing individuals to change jobs without affecting their retirement savings.
- The scheme provides families with a systematic way to secure their children's financial future, offering peace of mind and a strong foundation for their adult lives. It represents a valuable tool for building a robust retirement corpus.
- The NPS Vatsalya Scheme reflects the government's commitment to promoting financial planning and ensuring a dignified future for all citizens, contributing to comprehensive financial well-being across generations.
Maximize your child’s financial future with NPS Vatsalya! Understand the scheme’s interest rates, tax benefits, and smart investment strategies with expert insights. Secure savings today for a worry-free tomorrow! Book Consultation with Online CAs!
