The NPS Vatsalya Yojana, recently launched by the government, is a revolutionary pension scheme designed for children under the age of 18. This scheme allows parents to open a pension account in their child’s name, contributing to their financial future with the power of compounding interest. With minimal annual investments, parents can create a substantial fund for their child’s future, making them financially secure and even a millionaire by retirement.
What Is NPS Vatsalya?
NPS Vatsalya is a child-centric pension account designed to encourage early savings for a child’s future. Parents can open this account with a minimum annual investment of Rs 1,000, and there is no upper limit to how much can be deposited. The scheme not only allows parents to build a financial corpus for their children but also offers the benefit of compound interest, which can significantly grow the investment over time.
The account has a lock-in period of 3 years, and after this period, up to 25% of the amount can be withdrawn for essential purposes like education or medical emergencies if the child is still under 18. The account can be opened through various channels, including banks, post offices, and online platforms.
Conversion into a Regular NPS Account at 18
When the child turns 18, the NPS Vatsalya account will be automatically converted into a regular NPS account. This allows the child to continue investing for their future or retirement if they choose. Upon conversion, a KYC process will need to be completed within 3 months.
At this point, the account holder can withdraw 20% of the total amount, while 80% will go into an annuity plan, securing a stable income in the long term. If the total amount is Rs 2.5 lakh or less at the time of conversion, the entire sum can be withdrawn in one go.
How Small Investments Grow into Crores
Parents can start investing as little as Rs 10,000 annually in their child’s NPS Vatsalya account. Over the course of 18 years, this will accumulate around Rs 5 lakh with an average return of 10%. But the real magic happens if this investment continues until the child turns 60.
- If the investment continues with the same annual contribution until retirement, and the average return is 10%, the total fund could grow to Rs 2.75 crore.
- If the NPS allocation includes 50% in equity, 30% in corporate debt, and 20% in government securities, the average return could rise to 11.59%, growing the fund to Rs 5.97 crore.
- With a more aggressive strategy of 75% in equity and 25% in government securities, the return could be as high as 12.86%, leading to a retirement fund of Rs 11.05 crore.
Why NPS Vatsalya Is a Smart Investment
The NPS Vatsalya Yojana provides a unique opportunity for parents to invest small amounts regularly while reaping the benefits of compound interest and market returns. Over time, even modest investments can grow into a massive fund, ensuring financial independence for the child in adulthood. The flexibility of the scheme, combined with its potential for high returns, makes it an excellent long-term investment.
Investing early and consistently can give your child a secure financial future. With NPS Vatsalya, parents now have a tool to make their children millionaires by the time they reach retirement, without needing to invest large sums.
