Finance Minister Nirmala Sitharaman mentioned the ‘NPS Vatsalya’ scheme in the budget presented on February 1, 2024. Subsequently, this scheme was launched keeping in mind the future of children. Parents are given the opportunity to save for their children’s future by investing in a pension account. Parents can become a part of the NPS Vatsalya scheme online or by visiting a bank or post office. The scheme can be started with a minimum investment of Rs 1,000.
NPS Vatsalya is an extension of the existing NPS offered by the Public Sector Undertaking (PFRDA). Accounts can be opened for children below the age of 18. The investment can be withdrawn after the child turns 18. Additionally, you can convert it into a regular NPS account. Pension for accounts opened under NPS Vatsalya will be available only after reaching the age of 60.
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Several banks, including ICICI Bank and Axis Bank, have partnered with the Public Sector Undertaking (PFRDA) for ‘NPS Vatsalya’. NPS Annuity Account, like a regular NPS account, comes with auto-choice and active-choice options. By default, NPS account holders will get a moderate lifecycle fund with 50% equity ratio. Under auto-choice, they will get 75%/50%/25% equity options.
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How to Invest?
If you have invested in the NPS Annuity Scheme in the name of your child, you can exit the scheme when they turn 18. If the child’s account balance is less than Rs 2.5 lakh, you can withdraw the entire amount at once. However, if the balance is more than Rs 2.5 lakh, you can withdraw 20% at once. You can use the remaining amount to buy an annuity for regular income.
To open this account in the name of the child, a birth certificate, parent’s Aadhaar card, DL, passport, voter ID card, MNREGA job card, or National Population Registration Card will be required for KYC. The parent’s PAN card is also required. A PRAN will be issued in the child’s name.
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If you make an investment of Rs. 10000 every month for a period of 18 years at an annual interest rate of 10%, your total contribution will equal to Rs. 2160000. At this rate you can expect to receive around Rs. 5764000. If you invest the same amount every month for the same length of time at an annual interest rate of 12% you may receive approximately Rs. 7117286 after 18 years. Investing the same amount every month for the same time with a return equal to 12.86% annually (this is the return from investing in 75% equity per NPS return) will give you an approximate total of Rs. 781061 after 18 years.