The wait for the much-talked about NPS Vatsalya, an NPS for minors, will soon be over. The government and pension regulator PFRDA plan to launch this scheme in the next fortnight.
NPS Vatsalya is poised to be a transformational financial tool, offering parents a secure pathway to long-term wealth creation for their children as they grow up.
It reflects the government’s vision of promoting financial inclusion and security across generations.
The Pension Fund Regulatory & Development Authority (PFRDA) is giving final touches to the NPS Vatsalya scheme, which will be launched at the hands of Finance and Corporate Affairs Minister Nirmala Sitharaman next fortnight, sources said.
In her Budget speech this year, Sitharaman had said: “NPS Vatsalya, a plan for contribution by parents and guardians for minors, will be started. On attaining the age of majority, the plan can be converted seamlessly into a normal NPS account.”
What is NPS Vatsalya?
Put simply, NPS Vatsalya will be a modified version of the National Pension System (NPS) specifically designed for minors. It would allow parents and guardians to open an NPS account for their children and contribute regularly towards a savings pool until the minor turns 18.
When the minor turns 18, the account can be seamlessly converted into a regular NPS account. Upon reaching adulthood, the beneficiary will have the autonomy to manage the account and decide on the investment strategies.
By encouraging early investments, this scheme is expected to provide a robust long-term savings vehicle that supports individuals through various life stages, beyond just retirement.
Similar to the existing NPS structure, this NPS Vatsalya account is expected to offer a mix of equity, government securities, and corporate bonds, providing a balanced risk-return profile.
Subscribers to NPS Vatsalya are likely to have an option to choose between auto choice (life cycle funds like LC25, LC 50 and LC75) and active choice depending on their risk profile.
India has over the last two decades (since 2004) successfully built a defined contribution NPS that has grown leaps and bounds to touch Assets under management of ₹13 lakh crore as of August 31 this year.
The primary advantage of this NPS Vatsalya scheme is the potential to create significant wealth over time through compounding, pension industry observers said.
Starting early allows for higher accumulation, as investments grow exponentially over a longer period. This gives minors a head-start in retirement savings, which can lead to substantial financial resources when they reach their retirement age, they said. Also, this scheme can serve as a tool for funding the college education as it would help build a corpus for that purpose from an early stage.
- Also read: Private sector continues to fuel NPS assets growth, records 39.62% jump at ₹2.52 lakh crore
Partial Withdrawal
Indications are that the proposed NPS Vatsalya scheme would allow partial withdrawal before subscriber turns 18. Subscribers may be allowed to do partial withdrawal after three years of joining NPS Vatsalya and the maximum sum allowed for withdrawal is likely to be 25 per cent of contributed amount. Partial withdrawal is expected to be allowed for the purposes of education, treatment of specified illnesses, disability etc.
An NPS Vatsalya subscriber is also proposed to be allowed to exit NPS at 18. On exit, at least 80 per cent of the accumulated corpus may be required to be invested in annuity plan, while 20 per cent can be withdrawn as lumpsum.
Financial Inclusion & Literacy
NPS Vatsalya is also seen as a powerful tool for financial inclusion, encouraging families to think about future financial security from a young age. By introducing minors to the concept of disciplined savings and investment, the scheme also aims to enhance financial literacy. It provides an opportunity to teach the importance of wealth management, long-term planning, and the basics of financial markets early in life, economy watchers said.
NPS Vatsalya —Game Changer for Securing Minors’ Financial Health
* Budget 2024-25 had announced this scheme
* Proposed scheme to be long-term savings vehicle for minors
* New scheme to enable wealth creation at an early stage, not wait till 18 years
* To enhance financial literacy by introducing minors to disciplined savings and investments
* New scheme to promote financial security across generations