NPS Vatsalya Scheme: A New Pension Scheme for Children Launched by FM Nirmala Sitharaman
Union Finance Minister Nirmala Sitharaman launched the NPS Vatsalya scheme in New Delhi. This new initiative aims to provide a structured way for parents and guardians to invest in their children’s future. Announced during the Union Budget 2024-25, the NPS Vatsalya scheme is a significant step towards enhancing financial security for minors in India.
The NPS Vatsalya scheme is designed to allow parents to start saving for their children’s retirement from an early age. With a minimum annual contribution of just ₹1,000, it is accessible to families across various income levels. There is no upper limit on contributions, enabling parents to invest as much as they wish over time. This flexibility encourages long-term financial planning.
Key Features of NPS Vatsalya Scheme
- Eligibility: The scheme is open to all Indian citizens, including Non-Resident Indians (NRIs). Legal guardians can also open accounts for their minor children. The child must be under 18 years of age to qualify.
- Investment Options: The NPS Vatsalya offers several investment choices:
- Default Choice: The Moderate Life Cycle Fund (LC-50), which allocates 50% of investments in equity.
- Auto Choice: Parents can choose from various Life Cycle Funds:
- Aggressive LC-75 (75% equity)
- Moderate LC-50 (50% equity)
- Conservative LC-25 (25% equity)
- Active Choice: This allows parents to actively manage their investments across different asset classes, including equity, corporate debt, government securities, and alternative assets.
- Partial Withdrawals: After three years of account opening, parents can make partial withdrawals of up to 25% of the total corpus. This feature is particularly useful for emergencies or significant expenses such as education or medical treatment. Withdrawals can be made up to three times before the child turns 18.
- Maturity and Conversion: When the child turns 18, the account matures. If the total corpus is ₹2.5 lakh or less, it can be withdrawn fully. If it exceeds ₹2.5 lakh, subscribers can withdraw 20% as a lump sum while the remaining 80% must be used to purchase an annuity for regular income. Alternatively, parents can choose to extend the account into a regular NPS Tier-I account.
- KYC Compliance: Upon reaching adulthood, a new Know Your Customer (KYC) process must be completed within three months to continue managing the account.
Launch Event Highlights of NPS Vatsalya Scheme
The launch event was attended by school children and included simultaneous celebrations at about 75 locations across India. These events were connected via video conferencing to distribute Permanent Retirement Account Number (PRAN) cards to new minor subscribers at various locations.
The Finance Minister emphasized that this initiative reflects the Government of India’s commitment to promoting long-term financial planning and security for all citizens. The scheme aims not only to secure children’s futures but also to instill a culture of saving and investment among families.
Importance of NPS Vatsalya Scheme
The introduction of NPS Vatsalya is seen as a pivotal development in India’s pension framework. By allowing parents to invest early in their children’s lives, it leverages the power of compounding interest over time, potentially leading to substantial retirement savings when the child reaches adulthood.
This scheme aligns with global trends where early investment in retirement funds is encouraged as a means of ensuring financial independence in later years. The government hopes that by making such schemes accessible and flexible, more families will participate in securing their children’s financial futures.
