In a significant move to introduce financial literacy from a young age, the Indian government has launched the NPS Vatsalya Yojana, a pension scheme that now allows minors to have their own NPS account. Union Finance Minister Nirmala Sitharaman, in an announcement made earlier this year during the budget session, shared details about this new initiative aimed at encouraging early savings and investment habits among children. This scheme provides an opportunity for parents to secure their child’s future by introducing them to financial security from the beginning.
What Exactly Is NPS Vatsalya Yojana?
NPS Vatsalya Yojana is a child-specific version of the National Pension Scheme (NPS) that was previously only available to individuals over 18 years old. This initiative is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). Much like the traditional NPS, this new scheme helps parents invest in their child’s future by creating a long-term savings account designed for retirement or other major financial goals.
In simple terms, it allows parents to open an NPS account in the name of their minor child. The account is managed by the child’s guardian until the child reaches adulthood, but the investment benefits are entirely reserved for the child.
Who Can Open an NPS Vatsalya Account?
Any minor child, under the age of 18, is eligible to have an NPS Vatsalya account. Parents or legal guardians will manage the account on behalf of the child until they turn 18. The child will be the sole beneficiary of the investments made in the account, making it a great way to introduce financial literacy and responsibility early on.
Where Can You Open an NPS Vatsalya Account?
You can open the account either online or offline through authorized points of presence (PoP) registered with PFRDA. This includes many major banks in India, India Post, and various pension funds. A detailed list of these PoPs can be found on the official PFRDA website.
Documents Needed to Open an Account
To open an NPS Vatsalya account, parents need to submit a birth certificate of the minor. In case a birth certificate isn’t available, other valid documents like a school leaving certificate, matriculation certificate, PAN card, or passport can be used for identification. These documents verify the child’s age and identity.
How Much Can You Invest?
To open the account, a minimum annual deposit of Rs 1,000 is required. There is no upper limit on how much you can invest in the NPS Vatsalya account, making it flexible for parents who want to save more for their child’s future. The investment choices offered in the traditional NPS accounts are also available in the NPS Vatsalya Yojana, allowing parents to tailor their investments according to their preferences.
Withdrawal Rules for NPS Vatsalya Account
The NPS Vatsalya account comes with a three-year lock-in period, meaning funds cannot be withdrawn for the first three years. After this period, and before the child turns 18, parents can withdraw up to 25% of the funds. However, the withdrawal must be for specific reasons, such as educational expenses or medical treatment for the child.
Once the account holder turns 18, withdrawals are more flexible. If the total balance in the account is less than Rs 2.5 lakh, the entire amount can be withdrawn. For balances above Rs 2.5 lakh, only 20% can be withdrawn immediately, and the remaining 80% must be used to purchase an annuity.
In unfortunate cases where the child passes away, the entire balance in the account is transferred to the parents.
What Happens After the Child Turns 18?
If parents decide not to withdraw the money after the child turns 18, the NPS Vatsalya account will be converted into a regular NPS Tier-1 account within three months. At this point, a new KYC process will be required, and the account holder can continue investing as a normal NPS Tier-1 account holder.
Why Experts Recommend NPS Vatsalya Yojana
According to financial experts, including Lt. Col. (Retd.) Rochak Bakshi, a certified financial planner and the founder of True North Financial Services, the NPS Vatsalya Yojana offers parents a unique way to secure their child’s financial future from a young age. Bakshi points out that parents can open the account as soon as their child is born and keep the investment growing until the child reaches 60 years old, making it a powerful long-term savings plan.
The NPS Vatsalya account functions similarly to a mutual fund for minors, where the parent’s investments compound over time, and the child can benefit from a large corpus in adulthood. By starting early, parents also introduce their child to the concept of saving and investing, encouraging them to be more involved in managing their personal finances as they grow older.
An Investment in Your Child’s Future
The NPS Vatsalya Yojana is a groundbreaking scheme that allows parents to start building their child’s financial future from the moment they are born. With flexible investment options, early financial literacy, and the potential for long-term wealth creation, it’s a valuable tool for parents looking to secure their child’s future in a structured and reliable way.
