Enhance your child’s future with an investment of just ₹ 250: Know what is NPS Vatsalya Yojana and why is it special

The biggest dream of every parent is that their children’s future should be completely financially secure, self-reliant and stable. People generally invest in Fixed Deposits (FD), Sukanya Samriddhi Yojana (for girl child) or mutual funds in the name of children, but no organized structure of pension and long-term wealth creation was available to minor children earlier.

Launched by the Central Government to fulfill this deficiency ‘NPS Vatsalya Scheme’ The scheme has emerged as a very popular option among the parents of the country. Run by the Pension Fund Regulatory and Development Authority (PFRDA), this scheme allows parents to create a strong base of pension and investment in the name of their children from an early age. After the revised rules, now this account can be started with a minimum annual contribution of only ₹ 250.

NPS Vatsalya is actually a special extension of the National Pension System (NPS) designed for children. Its main eligibility criteria and features are as follows:

• Eligibility: This account can be opened in the name of any citizen of India, Non-Resident Indian (NRI) or OCI cardholder who is below 18 years of age.

• Account Operator: The parent or legal guardian opens and operates the account on behalf of the minor child.

• Sole Beneficiary: The child is the sole beneficiary and owner of the account.

• Minimum Contribution: Minimum contribution required to open and keep account active ₹250 per year has been fixed. There is no limit on maximum investment.

• Gift Contribution: Family relatives or well-wishers can also contribute as gifts to the child’s NPS Vatsalya account on special occasions (like birthdays or festivals).

The biggest strength of NPS Vatsalya is its long investment horizon and the power of compounding. From the time a child is at the age of 0 to 5 years till the time he turns 60, there is a long period of about 50 to 60 years.

Under NPS, funds are invested in equities (stock market), government securities (G-Sec) and corporate bonds. Historically NPS has provided average annual returns of 9.5% to 12% over the long run.

For example:

• If a parent only every month from the birth of the child ₹1,000 (₹12,000 annually) in this account, and it gets an average annual return of 10% to 11%, by the time the child turns 18, he will have a corpus of more than ₹6.5 lakh to ₹7 lakh.

• If the child continues to contribute to the same account after the age of 18 when he starts his job, then by the time of retirement, this small monthly contribution turns into a huge pension fund worth several crores of rupees.

When the child completes 18 years of age, the account is not automatically closed but he gets several great options:

1. Conversion to Regular NPS: On completion of 18 years of age, this account gets converted into normal ‘NPS Tier-1 (All Citizen Model)’ account by completing the necessary e-KYC process. After this the child operates his own account.

2. Relaxation to continue till 21 years: If the child wishes, he can continue it in Vatsalya format till the age of 18 to 21 years.

3. Exit and Withdrawal Rules: If an account holder wishes to exit the scheme at the age of 18 years:

   
   

   • If the total deposited corpus Less than ₹8 lakh If so, the entire amount can be withdrawn in cash in lump sum (100% lumpsum).

   • If the total fund ₹8 lakh or more If you have a pension, then at least 20% of the amount will have to be compulsorily purchased annuity (pension plan) and the remaining 80% amount can be withdrawn in lump sum.

Keeping in mind the essential needs of children, PFRDA has also provided the facility of partial withdrawal in this scheme:

• Partial withdrawal is allowed only after completion of 3 years from account opening.

• Funds can be withdrawn for the child’s higher education, treatment of serious illness or in case of more than 75% disability.

• Total withdrawal only up to the maximum of the original contribution deposited by the guardian (without adding returns) 25% Is limited to.

• A total of 2 partial withdrawals are allowed till the age of 18 years, while a total of 4 withdrawals can be made if continued till 21 years.

Opening an NPS Vatsalya account is extremely easy and can be completed both online and offline:

Online Method:

• Visit the official e-NPS portal of NSDL (Protean CRA) or KFintech.

• Select ‘NPS Vatsalya’ option.

• Enter parent and child details.

• Upload the required identity documents (Parent’s PAN, Aadhaar and child’s birth certificate/passport).

• Make a minimum initial payment of ₹250. Once the verification is complete, the child’s unique ‘PRAN’ (Permanent Retirement Account Number) will be issued.

Offline Method:

• Visit the Point of Presence (POP) center of your nearest government or private bank (like SBI, PNB, HDFC, ICICI, Bank of Baroda) or post office.

• Fill the NPS Vatsalya Application Form and submit it along with KYC documents.

While returns in traditional child insurance plans or bank RD/FD are limited to around 6% to 7%, NPS Vatsalya offers the benefit of market-based equity allocation. The most important thing is that this scheme teaches children the importance of financial discipline, investment and savings from an early age. This small sapling planted by the parents can grow up to become a huge and secure financial tree for their child.