The National Pension System (NPS) Vatsalya scheme, announced by the government on 23rd July, is designed for parents who wish to build a long-term financial plan for their children. Launched on 18th September, this pension scheme allows parents to invest for their children until they turn 18. Once the child reaches adulthood, the account is automatically converted into a regulatory pension account. The primary aim of the scheme is to create a secure retirement fund for the child, but there’s a catch – the child can only access a portion of the money when they turn 60. The rest of the fund is used to purchase an annuity for their pension.
Higher Education or Retirement: What Will Parents Choose?
While NPS Vatsalya offers a unique way to ensure long-term financial security for children, most parents are more concerned about the rising cost of higher education rather than planning for their child’s post-retirement. With education costs skyrocketing, especially for courses like medicine, engineering, and MBA, parents are primarily focused on securing funds for their child’s studies.
A survey by HSBC revealed that around 78% of wealthy parents are either planning to send their children abroad for higher education or have already done so. Even within India, private institutions charge hefty fees, making it crucial for parents to prioritize building an education fund first.
Experts Weigh In on Investment Priorities
Experts believe that most parents will likely prioritize funding their child’s higher education over investing in a retirement scheme like NPS Vatsalya. Amol Joshi, founder of PlanRupee Investment Services, explains that by ensuring that children are financially independent after their studies, parents can allow them to invest for their retirement later in life.
Popular options for creating an education fund include the Public Provident Fund (PPF), Sukanya Samriddhi Yojana (for daughters), and equity mutual funds through Systematic Investment Plans (SIPs). By investing in these schemes, parents can generate a solid fund within 10-15 years, ensuring their child’s education needs are met.
Alternative Investment Options for Parents
Mrin Agarwal, founder of Finsafe India, emphasizes that schemes like PPF, Sukanya Samriddhi, and SIPs are better suited for parents aiming to save for their child’s higher education. These options provide flexibility, allowing parents to use the funds when required for their child’s schooling. On the other hand, NPS Vatsalya restricts access to the deposited money until the child reaches retirement age, making it impractical for those looking to secure an education fund.
Education vs. Retirement
While NPS Vatsalya provides a structured approach to retirement planning for children, most parents will likely focus on securing funds for higher education first. Given the current financial challenges associated with education, investment options like PPF, Sukanya Samriddhi, and SIPs seem to be more attractive alternatives for parents looking to provide for their child’s future.
