What Is Nps Vatsalya Scheme?
In the Union budget of 2024-25, Finance Minister Nirmala Sitharaman announced a particular pension scheme called the National Pension System Vatsalya (NPS Vatsalya), aimed at securing a child’s financial future.
National Pension Vatsalya started on 18th September; this scheme allows parents to begin investing with just Rs 1,000 per year, making it a great way to ensure their children’s future. It also encourages early saving habits and demonstrates the benefits of compounding.
There is an upper limit to invest in the NPS Vatsalya scheme, and it will convert into a regular NPS account for any other non-NPS investment scheme when the child turns 18. The NPS vatslaya also gives options for outsiders of India to invest in this scheme, where non-resident Indians (NRIs) and overseas citizens of India (OCIs) can invest in this scheme and benefit.
However, their money remains locked until the child reaches 60, though it can be used for the child’s college education.
NPS Vatsalya Scheme For Children
NPS Vatsalya allows parents or guardians to set up an NPS account in their children’s names. They have the option to make monthly or annual contributions to the plan until their child reaches 18 years of age. This NPS is a new variation designed specifically for young people.
NPS Vatsalya is an excellent option for securing a child’s future as it is backed by the central government of India. This makes the NPS Vatsalya scheme one of the best retirement options, ensuring the child’s financial security.
Information and Eligibility For the NPS Vatslya Scheme
Eligibility Criteria:
The NPS Vatsalya scheme is available to any parent or guardian with children under the age of 18. After that, the NPS Vatsalya account switches to a standard NPS, and the minor can begin investing on their own.
NPS Vatslya Scheme:
This plan is an NPS designed for minors, enabling parents to contribute on behalf of their child to build a secure future and create a retirement fund. It is available in nearly 75 locations and has issued more than 250 PRANs (permanent retirement account numbers) to its young users. NPS Vatsalya is a combined savings and pension plan regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
A vital feature of the NPS Vatsalya scheme is its flexibility, allowing parents or guardians to choose from multiple investment fund options. These options are categorized into three variants based on different percentages of equity allocation.
Here are they:
Parents or guardians can opt for default, which is the Moderate Lifecycle Fund – LC-50, which takes a balanced approach by allocating 50% of the investments to equity. However, with the auto option, they can choose different funds based on their risk level preferences. Here’s a table that outlines the Auto Option:
Fund Type | Equity Allocation | Description |
Aggressive Lifecycle Fund (LC-75) | 75% | This fund is more suitable for risk-takers, as it allocates 75% of the amount to equity investments. |
Moderate Lifecycle Fund (LC-50) | 50% | A balanced approach with equal equity and debt is suitable for moderate risk-tolerant investors. |
Conservative Lifecycle Fund (LC-25) | 25% | Lower equity exposure is best for conservative investors looking for stability and lower risk. |
There is also another option called ‘Active Option.’ Parents or guardians who choose this option can allocate their funds based on their risk tolerance. This allows them to invest up to 75% in equities, a maximum of 100% in government-backed securities or corporate debt, and up to 5% in alternative assets.
To open the NPS Vatslya account, here are some essential documents that need to be provided
- Proof of Minor’s Date of Birth: This can include a Birth Certificate, School Leaving Certificate, Matriculation Certificate, PAN card, or Passport.
- Guardian’s Identity and Address Proof: Acceptable documents include Aadhaar, Driving License, Passport, Voter ID, NREGA Job Card, or National Population Register records.
- Guardian’s PAN or Form 60 Declaration: Required according to Rule 114B.
- For NRIs or OCIs: The child’s NRE/NRO bank account (either individual or joint) must be provided.
How To Open/Apply Nps Vatsalya Account?
In the offline mode, parents or guardians can apply through Points of Presence (POPs), which include India Post, major banks, and Pension Funds. In the online mode, the eNPS portal provides flexibility, allowing registration with agencies in India, such as Central Recordkeeping Agencies (CRAs) like Protean, KFintech, and Cams NPS.
The online approach is more dependable since it simplifies the initial enrolment process for an NPS Vatsalya account and provides a straightforward way to make extra contributions, hence boosting overall efficiency and user experience.
Here’s a step-by-step guide to opening an NPS Vatsalya Scheme account online:
- Step 1: Go to the eNPS website.
- Step 2: At the bottom, there is a “Register Now” option located just below the “NPS Vatsalya (Minors)” section.
- Step 3: Enter the guardian’s date of birth, PAN number, mobile number, and email address, then click on ‘Begin Registration.’
- Step 4: Put the OTP in the eNPS website received to the parent/guardian during registration
- Step 5: Following OTP verification, an acknowledgment number will show. Click ‘Continue.’
- Step 6: Fill out the information for both the minor and the guardian, submit any required papers, and click ‘Confirm.’
- Step 7: Make a first contribution of Rs.1000.
- Step 8: The Permanent Retirement Account Number (PRAN) will be created, and an NPS Vatsalya account will be opened in the minor’s name.
Nps Vatsalya Account Exit and Withdrawal
This scheme allows for withdrawals in between and offers an exit option when the minor turns 18 years of age. Below is a table summarizing the details:
Partial Withdrawals
Criteria | Details |
When Can You Withdraw? | – For the child’s education – For medical treatment – If the child is more than 75% disabled – Other reasons allowed by PFRDA |
How Much Can You Withdraw? | Up to 25% of the contributions (excluding the returns). |
Conditions for Withdrawal | – Withdrawal is allowed three years after the account opens. – Parents/Guardians have the option to withdraw 3 times until the child turns 18 – Requires a declaration. |
Provisions in Case of Death
Scenario | Action |
Child Deceased | All of the accumulated savings will be given to the guardian. |
Guardian Deceased | A new guardian needs to be registered by submitting the required documents to PFRDA. |
Both Parents Deceased | The legal guardian can manage the account, and the child can choose to continue or exit the scheme when they turn 18. |
Exit and Annuity Purchase
Criteria | Details |
When Can the Child Exit the Scheme? | The child can exit the scheme only after turning 18. |
How Will the Money Be Used? | – 80% of the accumulated savings must be allocated toward purchasing an annuity, providing a regular lifetime income. – The remaining 20% will be paid as a lump sum. |
Exception | If the total savings is ₹2.5 lakh or less, or an annuity is not available, the entire amount can be withdrawn. |
FAQ’s.
What is NPS Vatsalya scheme for?
NPS Vatsalya is a government pension scheme primarily designed to secure children’s financial future. The government introduced this scheme to raise awareness about the importance of savings and the power of compounding among children.
Who is eligible for the Vatsalya scheme?
The criteria for NPS Vatsalya require that parents or guardians residing in India with minors under 18 years of age can apply. The scheme converts into a regular NPS when the child turns 18. Currently, it is considered a strong retirement option in India.
How do you invest in the NPS Vatsalya scheme?
Parents or guardians can invest in this scheme by first registering an account. Registration is available both offline through Points of Presence (POPs) and online via the eNPS website.
Is Nps Vatsalya Is Taxable Or Not?
Yes, the NPS Vatsalya scheme falls under the EEE (Exempt-Exempt-Exempt) category, offering tax benefits on contributions, tax-free growth, and tax-free withdrawals under certain conditions.
