The National Pension Scheme (NPS) Vatsalya, launched this year, in September, allows parents or guardians to invest in a government pension scheme on behalf of their children.
Designed specifically for Indian minors (up to 18 years of age), it is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). The scheme’s interest rate has recently been between 9.5% and 10%, thereby, making it a valuable tool for building a secure financial future for children.
Since the account is opened when the child is a minor, it helps accumulate a substantial retirement corpus over time.
Moreover, this scheme also encourages early savings habits, teaching children the importance of financial planning from a young age.
WHO CAN BENEFIT FROM THE NPS VATSALYA SCHEME?
Any Indian minor under 18 is eligible for the NPS Vatsalya scheme. The account is in the minor’s name, operated by a guardian, with the minor as the sole beneficiary.
WHAT DOCUMENTS ARE REQUIRED TO OPEN THE NPS VATSALYA SCHEME?
To open an NPS Vatsalya account, the following documents are needed:
Proof of the minor’s date of birth (Birth certificate, school-leaving certificate, PAN, etc.)
KYC documents of the guardian (Aadhaar, Passport, Voter ID, Driving Licence, etc.)
The guardian’s PAN or Form 60 declaration
For Non-Resident Indians (NRIs) or Overseas Citizens of India (OCIs), the minor must have a Non-Resident External (NRE)/ Non-Resident Ordinary (NRO) bank account.
WHAT IS THE MINIMUM CONTRIBUTION REQUIRED?
A minimum contribution of Rs 1,000 per year is required, with no upper limit. An initial deposit of Rs 1,000 is necessary to enroll in the scheme.
IS PARTIAL WITHDRAWAL ALLOWED FROM THE NPS VATSALYA ACCOUNT BEFORE 18 YEARS?
Partial withdrawals from your NPS Vatsalya account are permitted to cover contingency situations such as:
Education or treatment of specified illnesses of the minor subscriber
Disability exceeding 75% of the minor subscriber
A maximum amount of up to 25% of contributions (excluding returns) can be partially withdrawn
This facility is available on a declaration basis after a minimum of 3 years from the date of account opening
A partial withdrawal can be made up to three times until the subscriber turns 18 years old
HOW ARE CONTRIBUTIONS INVESTED IN THE NPS VATSALYA SCHEME?
Subscriber contributions are invested based on the chosen Pension Fund and Asset Allocation, as recorded with the Central Recordkeeping Agency (CRA), following PFRDA’s investment guidelines for each asset class:
Asset Class E: Equity shares of the top 200 companies in terms of market capitalization listed on NSE/BSE
Asset Class C: Corporate bonds and debentures.
Asset Class G: Government securities and State Development Loans.
Asset Class A: Alternative assets.
WHAT EXIT OPTIONS ARE AVAILABLE UNDER THE NPS VATSALYA SCHEME?
Exit is allowed only when the minor turns 18. At least 80% of the accumulated wealth must be used to purchase an annuity, while the remaining 20% can be withdrawn as a lump sum.
If the total amount is Rs 2.5 lakh or less, the entire sum can be withdrawn if annuities are unavailable from empaneled providers.
