Finance and Corporate Affairs Minister Nirmala Sitharaman on Wednesday urged parents to wholeheartedly embrace the newly launched ‘NPS Vatsalya,’ a savings-cum-pension scheme designed for minors, aimed at giving children an early start in building their retirement savings.

The ‘NPS Vatsalya’ will bring about a habit of saving for the parents who can put the money for their children and ensure that the latter in their growing years get the advantage of robust returns that NPS is generating, Sitharaman said in the capital after launching this new scheme announced in the recent Union Budget.

It is a scheme that can give a sense of dignity to the elders and sense of security to the children that elders are being taken care of, she added. 

Commending the swift action of the pension regulator PFRDA and the Department of Financial Services (DFS) in implementing the July 2024 budget announcement , Sitharaman noted that she was “pleasantly surprised” to see it (a budget announcement) being executed with such remarkable speed.

“Fulfilling what was said in budget in a matter of few months gives a lot of hope that budget speeches are not just read, but they are acted upon”, Sitharaman said.

NPS VATSALYA SCHEME

This NPS Vatsalya scheme allows parents and guardians to open a 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.

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.

NPS Vatsalya offers flexible contribution and investment options, allowing parents to invest as little as ₹ 1,000 annually in their child’s name, making it accessible to families from all economic backgrounds. There is no upper limit for contributions.

Sitharaman noted overall NPS in the last ten years has grown at 37 percent CAGR. Currently, there are 1.8 crore NPS subscribers and assets under management has crossed ₹ 13 lakh crore.

Sitharaman also reeled out data to show how National Pension System (NPS) has generated robust returns for the non government sector since inception.

She highlighted that private sector NPS has grown much faster between March 2020 to March 2024 at 25 percent as opposed to 8 percent growth seen in government sector.

“Private sector employees have found NPS to be an attractive proposition and therefore you see such growth. The private sector AUM has grown 43 percent while government sector has grown 27 percent”, Sitharaman said.

Finance Minister highlighted that NPS scheme has generated competitive returns since inception. For the government sector, NPS has given an average return of 9.5 percent since inception. For the non-government sector, the equity scheme has given return of 14 percent, corporate debt 9.1 percent and government securities 8.8 percent. 

“So a child under NPS Vatsalya will get this kind of return from the day the money is saved. To open a NPS Vatsalya account, You can go to any bank, any post office, any pension fund office and also in e-NPS portal”, Sitharaman said.

Sitharaman urged parents to consider gifting contributions to the NPS Vatsalya scheme during occasions like children’s birthday parties. She highlighted that such a gesture could serve as a lasting investment in the child’s future, offering lifelong financial security.

Speaking on the occasion, DFS Secretary Nagaraju Maddirala highlighted that introduction of ‘NPS Vatsalya’ was another landmark initiative of this government in the pension sector. 

He said that several feedback and  suggestions have been received on how the NPS Vatsalya could be further improved upon by government. “As we go about implementing the NPS Vatsalya scheme, we will try to improve and the concerns expressed in last one week will be taken care. We will be receptive to the views of the population”, he added.

Investment Choices

Later PFRDA Chairman Deepak Mohanty told businessLine that the investment choices for NPS Vatsalya Subscribers will be the same as those available for NPS. Also a NPS Vatsalya subscriber can opt for any of the eleven pension fund managers to manage their corpus, he added.

Under Default Choice, there will be a Moderate Life Cycle Fund -LC-50(50 percent equity). 

For Auto Choice, a Guardian can choose Lifecycle Fund - Aggressive -LC-75(75 percent equity), Moderate LC-50 (50 percent equity) or Conservative-LC-25 (25 percent equity) as per his/her risk appetite.

In the case of Active Choice, Guardian actively decides allocation of funds across Equity (upto 75 percent), Corporate Debt (upto 100 percent), Government Securities (upto 100 percent) and Alternate Asset (5 percent).

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