The National Pension Scheme (NPS) Vatsalya, launched by the Central Government, is quickly gaining popularity among parents looking for long-term financial security for their children. Designed specifically for children under 18 years of age, NPS Vatsalya allows parents to start saving from the day their child is born, ensuring a secure and stress-free retirement for them. With just a modest investment of Rs. 3000 per month, parents can build a substantial corpus, potentially giving their children a pension of over Rs. 13.5 lakh per month after they turn 60.
Why NPS Vatsalya is a Game-Changer for Parents
The government introduced NPS Vatsalya to offer parents a reliable way to secure their child’s future. This pension plan ensures that by the time the child reaches retirement age, they will have a substantial corpus to rely on. The scheme is flexible, allowing parents to invest according to their financial capabilities while also offering tax benefits.
One of the unique features of NPS Vatsalya is that it starts as a child account but transitions into a regular NPS account when the child turns 18. This allows for continuous long-term savings without any interruption, ensuring financial security well into their retirement years.
Key Features of NPS Vatsalya
- Eligibility:
All children under the age of 18 can be enrolled in the NPS Vatsalya scheme. Parents or guardians can open an account for their child. - Minimum Investment:
The minimum contribution required to start the account is Rs. 1000 per year. However, there is no upper limit, so parents can contribute as much as they want based on their financial goals. - Automatic Conversion:
Once the child turns 18, the NPS Vatsalya account automatically converts into a Tier 1 NPS account. If the total amount is under Rs. 2.5 lakh at this point, the child can withdraw the full amount. For amounts exceeding Rs. 2.5 lakh, 80% of the amount needs to be reinvested in an annuity plan, while 20% can be withdrawn. - Flexible Contributions:
Parents can choose to continue investing in the child’s NPS account until they turn 60, further increasing the potential pension payout.
NPS Vatsalya Calculator Example
To give you a better idea of how this plan works, let’s take an example:
- Monthly Investment: Rs. 3000
- Annual Investment: Rs. 36,000
- Estimated Return: 10% per annum
- Top-Up Every Year: 10% increase in investment
If a parent starts contributing Rs. 3000 every month from the time of their child’s birth and tops it up by 10% every year, the total investment by the time the child turns 18 would be around Rs. 16,41,570. With compounded returns, the total corpus at 18 years would be approximately Rs. 36,02,826.
At this stage, 20% of the amount can be withdrawn, and 80% needs to be invested in an annuity plan. This guarantees that a steady income will be generated after retirement.
How NPS Vatsalya Builds a Corpus of Rs. 46 Crore by Age 60
Now, let’s assume the contributions continue until the child reaches 60 years of age:
- Monthly Investment: Rs. 3000
- Annual Investment: Rs. 36,000
- Estimated Return: 10% per annum
- Top-Up Every Year: 10% increase
By the time the child turns 60, the total corpus would be around Rs. 46.03 crore. This massive corpus ensures a comfortable financial future for your child, making it an excellent investment for long-term wealth creation.
Annuity for Pension
To generate a pension, a minimum of 40% of the corpus must be invested in an annuity plan. Let’s assume the child chooses to invest 50% of the Rs. 46.03 crore corpus in an annuity. That means Rs. 23.01 crore will be placed in the annuity plan, which, at an estimated 7% annual return, will yield around Rs. 1.61 crore in interest annually.
This translates to a monthly pension of approximately Rs. 13.50 lakh, ensuring your child enjoys a financially secure retirement.
How to Open an NPS Vatsalya Account
Opening an NPS Vatsalya account is simple and can be done online. Here are the steps:
- Visit the Official NPS Website:
Go to the official NPS website or the NPS Vatsalya platform. - Register for a New NPS Account:
Select the option to create a new NPS account. - Fill in Details:
Provide the parent or guardian’s details such as name, date of birth, PAN, mobile number, email, and address proof. - Enter Child’s Details:
Fill in the necessary information for the child (between 0 to 18 years old). - KYC Requirements:
Complete KYC verification by submitting identity and address proofs as per the guidelines. - Choose Investment Options:
Once KYC is done, select the investment options and submit the application. - Receive Confirmation:
Once processed, you’ll receive confirmation that the account has been successfully opened.
By following these simple steps, you can ensure that your child is financially secure with the NPS Vatsalya scheme.
