NPS Vatsalya is a new Govt scheme initiated within National Pension Scheme to secure the financial future of your children. With this NPS Vatsalya Yojana parents can build a retirement corpus for their children. If parents invest ₹10,000 annually for 18 years, their contribution can grow to about ₹5 lakh, assuming a 10% rate of return (RoR). If the investment is left untouched until the investor turns 60, the final amount can vary based on the return rate. With a 10% RoR, the corpus could grow to approximately ₹2.75 crore.

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NPS Vatsalya Scheme: Secure Your Child’s Future with Just ₹1,000 a Year

The NPS Vatsalya Scheme was announced in the Union Budget 2024 by Finance Minister Nirmala Sitharaman. This scheme allows parents to contribute as little as ₹1,000 annually in their child’s name, making it an accessible pension plan for families from all financial backgrounds. Below, we’ll break down all the key details in a question-and-answer format to help you understand this unique pension plan designed for minors.

1. What is the NPS Vatsalya Scheme?

The NPS Vatsalya Scheme is a government-backed pension scheme specifically designed for minors. It allows parents or guardians to contribute towards their child’s financial future, starting with as little as ₹1,000 annually. Once the child turns 18, the NPS Vatsalya account transitions into a standard NPS account.

2. Who is eligible for the NPS Vatsalya Scheme?

Any minor under the age of 18 can be enrolled in the NPS Vatsalya Scheme. The child must possess a PAN card and Aadhaar card to open the account. The account can be opened by the parent or guardian on the child’s behalf.

3. How much can parents contribute to the NPS Vatsalya Scheme?

The minimum contribution is ₹1,000 per year, making it accessible for families across different financial backgrounds. There is no upper limit on contributions, meaning parents can contribute more if they wish to build a larger corpus for their child’s future.

4. What happens when the child turns 18 years old?

When the child reaches 18, the NPS Vatsalya account transitions into a standard NPS Tier-I account. Fresh KYC documentation is required to complete the transition, and from this point onward, the account functions under the norms of the NPS-Tier I (All Citizen Model).

5. What are the potential returns from the NPS Vatsalya Scheme?

The scheme has excellent long-term benefits. Based on different rates of return, the possible corpus for your child’s future can be substantial:

  • Annual Contribution: ₹10,000
  • Investment Duration: 18 years
  • Expected Corpus at 18 years: ₹5 lakh at a 10% rate of return
  • Expected Corpus at 60 years:
    • At 10% RoR: ₹2.75 crore
    • At 11.59% RoR: ₹5.97 crore
    • At 12.86% RoR: ₹11.05 crore

6. What are the withdrawal rules?

The scheme allows for partial withdrawals under specific conditions:

  • Up to 25% of contributions can be withdrawn after a lock-in period of three years.
  • Withdrawals are allowed for the following purposes:
    • Education
    • Specified illness
    • Disability
  • A maximum of three withdrawals is permitted.

After the minor turns 18, there are two scenarios:

  • Corpus above ₹2.5 lakh: 80% of the amount must be used to purchase an annuity, while 20% can be withdrawn as a lump sum.
  • Corpus below or equal to ₹2.5 lakh: The entire corpus can be withdrawn as a lump sum.

7. What happens in case of the minor's death?

In the unfortunate event of the minor’s death, the entire corpus will be returned to the guardian.

8. How can I open an NPS Vatsalya account for my child?

Opening an NPS Vatsalya account is simple. Here are the steps:

  • Visit your nearest bank that offers NPS Vatsalya services. Major banks like ICICI Bank, Axis Bank, Canara Bank, Central Bank of India, and Bank of Maharashtra provide this service.
  • You can also open the account online via the eNPS platform on the NPS Trust website. The platform supports the following Central Recordkeeping Agencies (CRAs):
    • Protean
    • KFintech
    • CAMS NPS

9. What documents are required to open an NPS Vatsalya account?

To open an NPS Vatsalya account, you will need the following documents:

  • Date of Birth proof of the minor (Birth Certificate, School Leaving Certificate, Matriculation Certificate, PAN, or Passport).
  • KYC documents of the parent or guardian (Aadhaar, Driving License, Passport, Voter ID, NREGA Job Card, or National Population Register).
  • Bank Account details (NRE or NRO account) if the guardian is an NRI.

10. What are the key benefits of the NPS Vatsalya Scheme?

The NPS Vatsalya Scheme offers numerous benefits:

  • Financial Security: A pension scheme tailored for minors to ensure a secure future.
  • Low Contribution Threshold: Start contributing with as little as ₹1,000 per year.
  • High Returns: The scheme offers substantial returns over time, especially if invested for the long term.
  • Tax Benefits: Contributions may qualify for tax deductions under Section 80C of the Income Tax Act.
  • Seamless Transition: When the minor turns 18, the account transitions into a full-fledged NPS account with ease.

The NPS Vatsalya Scheme is a powerful tool for parents to invest in their child’s future, offering flexibility, high returns, and long-term security. With low entry points and significant financial benefits, this scheme is designed to be inclusive for all families. If you're looking to secure your child’s financial future, the NPS Vatsalya Scheme is a great place to start.

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