Finance Minister Nirmala Sitharaman on Wednesday (September 18, 2024) launched the NPS Vatslya scheme, which will allow parents to save for their children’s future by investing in a pension account.

Parents can subscribe to NPS Vatsalya online or visiting a bank or post office. The minimum contribution to open the Vatsalya account is ₹1,000. Subscribers will have to contribute ₹1,000 annually thereafter.

The guidelines for withdrawal from the NPS accounts are being finalised.

Launching the scheme, Ms. Sitharaman said NPS has generated very competitive returns and offers the option to people to save while ensuring future income.

Editorial | The child at the centre: On Mission Vatsalya

What is NPS Vatsalya scheme?

NPS Vatsalya is an extension of the already existing National Pension Scheme to children. It enables parents to open pension accounts for their minor children.

The scheme will be run under the Pension Fund Regulatory and Development Authority (PFRDA) and Permanent Retirement Account Number (PRAN) cards will be issued to newly registered minor subscribers.

In the last 10 years, NPS has 1.86 crore subscribers with an Asset Under Management (AUM) of ₹13 lakh crore.

Children below 18 can open an NPS Vatsalya account, which will automatically get converted to a regular NPS account on completion of 18 years. Pension will come from the account only after they turn 60.

NPS has generated 14%, 9.1%, and 8.8% returns for investments in equity, corporate debt and G-Secs, respectively, Ms. Sitharaman said.

Also read | NPS Vatsalya was announced in the FY25 Budget presented in July, 2024.

Eligibility criteria

• The child must be under 18
• Both the child and the parent/guardian must be Indian citizens
• All parties must comply with the Know Your Customer (KYC) requirements

How to Apply for the NPS Vatsalya Scheme

• NPS Vatsalya account can be opened through Points of Presence (POPs) which include major banks, India Post, Pension Funds, etc.
• Visit the official eNPS website and submit applications online through the portal
• Parents or guardians must provide necessary documents, including identification for both themselves and the child, to open an account
• Make a minimum initial contribution of ₹1,000, after which families can decide how frequently they want to make further contributions

Investment choices

• Default Choice: Moderate Life Cycle Fund — LC-50 (50% equity)
• Auto Choice: Guardian can choose Lifecycle Fund — Aggressive: LC-75 (75% equity); Moderate: LC-50 (50% equity); Conservative: LC-25 (25% equity)
• Active Choice: Guardian actively decides allocation of funds across Equity (up to 75%); Corporate Debt (up to 100%); Government Securities (up to 100%); and Alternate Asset (up to 5%)

Withdrawal process

• Following a three-year lock-in period, a maximum of three withdrawals of up to 25% of contributions are allowed for reasons including education, a specific disease, or a handicap
• Upon turning 18 years old, the NPS Vatsalya account will automatically get converted to regular NPS account
• If the amount invested surpasses ₹2.5 lakh at the age of 18, 80% of it is used to purchase an annuity, and the remaining 20% can be taken as a lump payment
• A lump sum withdrawal of the full capital is possible if it is less than or equal to ₹2.5 lakh
• In the event that the contributor passes away, the entire amount will be returned to the appointed guardian

With inputs from the official NPS Vatsalya website and agencies.