With the aim of securing financial security for the younger generation, the central government recently introduced the NPS Vatsalya scheme. Launched on September 18, 2024, officially by Finance Minister Nirmala Sitharaman, the scheme focuses on allowing parents and guardians to begin building a retirement corpus for their children from an early age. This scheme was announced in the Union Budget 2024.

Here is a detailed look at how NPS Vatsalya works and why it could be a game-changer for many families.

What is NPS Vatsalya?

NPS Vatsalya is a new addition to the National Pension System (NPS), specifically designed for minors.

This scheme allows parents and guardians to invest in a pension account on behalf of their children, with the aim of building a substantial retirement corpus by the time the child reaches adulthood.

How to Open an NPS Vatsalya Account

Opening an NPS Vatsalya account can be done both online and offline.

For the online registration -

- Visit the official NPS website.

- Go to the 'NPS Vatsalya (Minors)' section and click 'Register Now.'

- Provide information such as the guardian’s date of birth, PAN number, mobile number, and email address.

- Confirm the OTP sent to the guardian's mobile number and email.

- Fill in the minor’s details, upload the required documents, and make the initial contribution of Rs 1,000.

For offline registration -

Visit a designated Points of Presence (POPs) such as major banks (Axis Bank, ICICI Bank) or India Post branches with the necessary documents to open the account.

Who can Enroll?

The NPS Vatsalya scheme is available to-

- Citizens of India under 18 years.

- Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) below 18 years.

- Parents or guardians who want to secure their child’s financial future.

How Does It Work?

The NPS Vatsalya account functions as a long-term savings and pension plan.

Contribution: Parents can contribute a minimum of Rs 1,000 annually but there is no upper limit.

Conversion: Once the child turns 18, the NPS Vatsalya account automatically transitions to a regular NPS Tier I account.

Returns: The scheme offers returns similar to NPS, with investment exposure to equity markets, corporate debt, and government securities.

About the withdrawals

Before Age 18

Partial Withdrawals: Up to 25 per cent of the contributed amount can be withdrawn for specific needs like education or medical expenses.

Conditions: Withdrawals are allowed after the account has been active for at least 3 years, and up to three times before the child turns 18.

Post-18 Transition

The account can be converted into a regular NPS account. At retirement (age 60), 80 per cent of the corpus must be reinvested in an annuity, while 20 per cent can be withdrawn as a lump sum.

If the total corpus is less than Rs 2.5 lakh, it can be withdrawn entirely in a lump sum.

In Case of Unforeseen Events

Guardian’s Death: A new guardian must be appointed through a fresh KYC process.

Both Parents' Death: The scheme can continue with a new legal guardian until the child turns 18.

Minor's Death: The entire corpus is transferred to the guardian.