The Government of India has introduced an innovative initiative under the National Pension System (NPS) designed to provide children with long-term financial security. It is a new scheme named the NPS Vatsalya. It was first announced as part of the Union Budget 2024 presented in July and officially launched by Finance Minister Nirmala Sitharaman on September 18. The primary goal of the NPS Vatsalya scheme is to offer a structured platform for parents and legal guardians to invest in their children’s financial future from an early age. Furthermore, the scheme will be managed by the Pension Fund Regulatory and Development Authority (PFRDA) for professional management and regulatory oversight.
With NPS Vatsalya, parents and guardians can systematically contribute towards building a pension fund or retirement corpus for their children. No matter whether you are planning for their marriage, education, or some other goals, investing in this scheme may let you reap countless benefits.
Eligibility Criteria
Here are the eligibility criteria for NPS Vatsalya.
| Parameters | Details |
| Age | Up to 18 Years |
| Minimum Contribution | Rs. 1,000 and there’s no maximum limit |
| Accessibility | The scheme is accessible to Indian Citizens and NRIs with accounts opened by legal guardians in the child’s name. |
| Mode of Operation |
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| Pension Fund Selection | Guardian can choose any one of the Pension funds registered with PFRDA. |
What are the investment choices under NPS Vatsalya?
The NPS Vatsalya scheme offers a wide range of investment choices which provides flexibility to parents or legal guardians in terms of how they want to allocate funds for their children’s future. Here is a list of the detailed choices available.
Default Choice (Moderate Life Cycle Fund (LC-50)):
It is the default choice where contributions are automatically invested in the Moderate Life Cycle Fund (LC-50). Under this choice, the fund maintains a balanced approach with a 50% allocation towards equities, which typically offers higher returns but with moderate risk. Furthermore, it is an ideal choice for guardians who are looking for a balanced, automated investment approach that gradually adjusts based on the age of a child.
Auto Choice (Life Cycle Fund):
If you prefer more control but still want the investments to be auto-managed based on the child’s age, then this is an ideal choice. It comes with three distinct life cycle funds. Remember that each has a different level of exposure to equities.
- Aggressive LC-75
In this aspect, up to 75% of the investment is allocated to equities, which offer a higher growth potential but with greater risks. It is ideal for those who have a high-risk appetite and a focus on long-term capital appreciation.
- Moderate LC-50
Similar to the default option, 50% of the investment is allocated to equities, which provides a balanced approach to risk and return.
- Conservative LC-25
This option’s only 25% of the investment is directed towards equities, which makes it ideal for those seeking lower risks and more stability while focusing on debt and government securities.
Active Choice (Custom Allocation by the Guardian):
The Active Choice Option provides the highest level of control which allows the guardian to actively manage and decide how contributions will be distributed across different asset classes. The guardian can allocate the investments according to their own preferences with the following limits;
- Equity (E)
Up to 75% of the funds can be invested in equities which offer potential for higher returns but also higher volatility.
- Corporate Debt (C)
Up to 100% of the contributions can be allocated to corporate debt, which typically provides stable returns with lower risks compared to equities.
- Government Securities (G)
Like the above, up to 100% of investments can be allocated to government securities, which are considered a safe option with minimal risk.
- Alternate Assets (A)
Up to 5% can be invested in alternate assets, which allows diversification into less traditional assets, such as infrastructure or real estate investment trusts (REITs).
What is the Flexibility of the amount Under NPS Vatsalya?
Let’s first discuss partial withdrawal.
- Partial Withdrawal
Subscribers under NPS Vatsalya are allowed to make partial withdrawals under specific circumstances, which may provide financial support in times of need. Here is a list of the key aspects that may include;
- Eligibility for Partial Withdrawal
After a lock-in period of three years from the date of initial investment, the guardian or parent can make partial withdrawals of up to 25% of the total contribution.
- Purpose for Individual
These withdrawals are permitted for essential needs, such as the child’s education, specified critical illnesses, disability, and more.
- Limit on Withdrawals
Guardians can make these withdrawals a maximum of three times before the child reaches 18 years of age, which ensures that the accumulated corpus remains largely intact while still providing access to funds for urgent requirements.
Exit Provisions
Upon the child attaining 18 years of age, the accumulated corpus determines the exit options available under the NPS Vatsalya scheme:
- If the accumulated corpus is equal to or greater than Rs. 2.5 lakh.
- If the accumulated corpus is less than Rs. 2.5 lakh.
Seamless Transactions to NPS Tier- 1
Upon reaching 18 years, subscribers can transition smoothly from NPS Vatsalya to NPS Tier-1 with minimal procedural hassle. Here are the key elements that may include;
- Fresh KYC: To facilitate the transition, it should be completed within three months of the child’s turning 18.
- Tier-1 Features: After transitioning, the subscriber will enjoy the full range of features and benefits offered under the NPS Tier-1 scheme, including continued accumulation of retirement savings with flexibility in investments, tax benefits, and exit norms under the All Citizen Model.
What are the Benefits of Opening an NPS Vatsalya Account for a Child's Future?
Let’s take a look at the benefits of opening an NPS Vatsalya account for your child.
- Early Start to Savings
One of the benefits of opening an NPS Vatsalya account is that parents can begin saving for their child’s future from a young age. This helps build financial discipline and establish a foundation for long-term financial security.
- Growth Through Compounding
Another major benefit of opening an NPS Vatsalya account is that the scheme takes advantage of compounding which means the earlier you start, the more the investment grows over time. When the child turns 18, it may lead to a significant financial corpus.
- Flexible Contributions
Another major highlight of the scheme is that you can start with a minimum annual contribution of Rs. 1,000. There is no maximum limit. Furthermore, the scheme is accessible to families from various financial backgrounds.
- Partial Withdrawals for Emergencies
One of the major interesting aspects of the scheme is that parents can easily withdraw up to 25% of the total amount saved for important needs like their child’s education or medical expenses, which would give them financial flexibility in times of need.
- Smooth Transition into Adulthood
Last but not least, once the child turns 18, the scheme automatically converts into a regular NPS account. Furthermore, it allows continued investment growth which ensures that the funds remain available for future needs such as higher education or retirement.
How to Open NPS Vatsalya's Account?
If you want to open an NPS Vatsalya account, you can do it online or online. Let’s first discuss the online method.
- In the first step, you will need to visit the official website of eNPS.
- On the top, you will see “National Pension System (NPS)” in the title bar. From the National Pension System (NPS) drop-down list, click on “NPS Vatsalya (Minors)” Registration.
- The moment you click on it, it will automatically go below and you will see a box of NPS Vatsalya (Minors). Then, click on “Register Now”.
- After that, enter the guardian’s details—date of birth, PAN number, mobile number, and email—and click on “Begin Registration.”
- In the next step, you will need to verify the OTP sent to the guardian’s mobile number and email. After verification, an acknowledgement number will appear; click “Continue.”
- Fill in the minor’s and guardian’s details, upload the necessary documents and click “Confirm”. Then, you are required to make an initial contribution of Rs. 1,000.
- In the final step, your PRAN will be generated, and the NPS Vatsalya account will be opened in the minor’s name.
Offline Process:
To open an NPS Vatsalya account through the offline method, you can visit designated Points of Presence (POPs), such as banks or India Post Offices. Once there, speak to the customer representative at the counter and express your interest in registering for the NPS Vatsalya Scheme. Furthermore, the representative will guide you through the process and provide you with the necessary registration form. After filling in the required details, you can submit the form along with the necessary documents, and the account will be opened for your child’s future financial security.
What Documents are Required to Open an NPS Vatsalya Account?
Here are the documents required to Open an NPS Vatsalya Account.
Proof of Date of Birth for the Minor
- Birth Certificate
- School Leaving Certificate or Matriculation Certificate
- PAN Card
- Passport
KYC Documents of the Guardian
- Aadhar Card
- Passport
- Driving License
- Voter ID Card
- NREGA Job Card
- National Population Register (NPR) Document
NRE/NRO Bank Account Details (If Applicable)
If the guardian is an NRI (Non-Resident Indian), details of the minor’s NRE/NRO bank account, either solo or joint.
Frequently Asked Questions
Any parent or guardian of a child under 18 can open an NPS Vatsalya account. This includes accounts for children who are NRIs (Non-Resident Indians) or OCIs (Overseas Citizens of India).
The minimum investment required is Rs. 1,000 and there is no limit to how much you can invest.
Yes, the scheme is completely tax-free. The government has not yet announced any tax benefits for the NPS Vatsalya scheme, and its taxation is still pending.
Yes, NPS Vatsalya is an ideal choice for long-term investments. Furthermore, it helps secure a child’s financial future which offers flexibility and returns linked to market performance.
Yes, even though the returns are linked to market performance, the scheme is considered safe because it is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
