NPS Vatsalya Scheme: Interest Rate, Tax Benefits & How to Apply Online?

Finance Minister Nirmala Sitharaman proposed introducing a new scheme, NPS Vatsalya, in her Budget 2024 speech. The NPS Vatsalya Scheme was officially launched on 18 September 2024. This scheme will be a National Pension Scheme (NPS) for minors, allowing parents to contribute a certain amount on behalf of their children towards NPS to secure their future and help them develop a retirement fund.

Read on to know all about the NPS Vatsalya Scheme and its eligibility, benefits, and applicability. 

NPS Vatsalya Scheme for Minor Children

The NPS Vatsalya Scheme proposed in Budget 2024 enables parents and guardians to start a National Pension Scheme (NPS) for their children. This savings-cum-pension scheme is designed exclusively for minors. Under this scheme, parents or guardians can open an NPS account for their minor children and contribute an amount every month or year till the child reaches 18 years. The minimum contribution is Rs.1,000 per year and there is no limit on the maximum contribution.

The NPS Vatsalya Scheme is regulated and administered by the Pension Fund Regulatory Authority of India (PFRDA). It will be a variant of the existing NPS, tailored explicitly for young individuals. The objective of this scheme is to strengthen long-term financial security and develop retirement savings habits at a young age. Parents can open accounts for their children and contribute towards their retirement savings under this scheme to secure their future and help them to have disciplined saving habits from an early age.

The NPS scheme introduced by the Central Government provides pension income to individuals to support their retirement needs. Thus, the NPS Vatsalya Scheme is one of the finest retirement options, guaranteeing the child’s financial security. 

NPS Vatsalya Scheme Overview

NPS Vatsalya Scheme Features

• Parents or guardians can open an NPS Vatsalya Scheme for their minor children, who will be the sole beneficiaries.
• NPS Vatsalya account will be operated by the guardian for the exclusive benefit of the minor until they attain majority. Once they turn 18 years old, the account will be transfered to the child's name and they can continue it with the accumulated corpus.
• When a minor attains 18 years, the account will continue to be operational and will be shifted into the NPS-Tier 1 Account - All Citizen Model or other non-NPS scheme account. 
• The Central Recordkeeping Agency (CRA) will issue a unique Pension Retirement Account Number (PRAN) in the name of the minor.
• A fresh KYC will be carried out when the minor is 18 years old. It will be done within 3 months of attaining the majority. 
• The minor can operate the account once he/she attains the majority after KYC completion. 
• The minimum contribution to NPS Vatsalya is Rs.1,000 per annum, and there is no limit on the maximum contribution. 
• The initial enrollment contribution to NPS Vatsalya is Rs.1,000.
• NPS Vatsalya scheme offers partial withdrawal and exit options. 

NPS Vatsalya Scheme Interest Rate

The NPS Vatsalya Scheme interest rate ranges between 9.5% to 10%.

Who is Eligible for NPS Vatsalya?

• Indian citizens below 18 years
• Non-Resident Indian (NRI) and Overseas Citizenship of India (OCI) individuals below 18 years
• Parents or guardians of a child can open and operate the account on behalf of the minors 
• Parents or guardians will be nominees under the scheme, and the child will be the sole beneficiary

Applicability of NPS Vatsalya Scheme

The NPS Vatsalya Scheme applies to all parents and guardians of minor children. Till the child reaches 18 years, the parents will deposit the minimum amount into the NPS Vatsalya account. However, once the child reaches 18 years, the NPS Vatsalya account will be converted to a standard NPS account, and the children can independently operate the standard NPS account. This scheme expands the NPS to cover minor children, providing families with a fresh investment option for their children’s financial security and retirement.

How to Open/Apply NPS Vatsalya Scheme?

Parents or guardians can open the NPS Vatsalya Scheme on the eNPS website or through Points of Presence (POPs) which include India Post, major banks, Pension Funds, etc.

The process to open NPS Vatsalya Scheme account online is as follows:

Step 1: Visit the eNPS website.

Step 2: Scroll down and click on ‘Register Now’ option under the ‘NPS Vatsalya (Minors)’ tab.

Step 3: Enter the guardian's date of birth, PAN number, mobile number, and email and click ‘Begin Registration’.

Step 4: Enter the OTP received on the guardian's mobile number and email.

Step 5: Once the OTP is verified, the acknowledgement number will be generated on the screen. Click on ‘Continue’.

Step 6: Enter the minor's and guardian's details, upload the required documents, and click ‘Confirm.’

Step 7: Make the initial contribution of Rs.1,000.

Step 8: Complete the dual OTP or eSign authentication.

Step 9: The PRAN will be generated and the NPS Vatsalya account will opened in the name of the minor.

Documents for NPS Vatsalya Scheme

The following documents are required to open a NPS Vatsalya Scheme:

• KYC of the guardian, such as Aadhaar card, passport, driving license, NREGA job card, voter ID card or National Population Register documents
• PAN of the guardian
• Date of birth proof of the minor, such as PAN, birth certificate, matriculation certificate, school leaving certificate or passport
• Signature of the guardian
• Scanned copy of passport, in case of NRI subscribers
• Scanned copy of foreign address proof, in case of OCI subscribers
• NRE/ NRO bank account of the minor, in case of NRI or OCI subscribers

Investment Choices Under NPS Vatsalya

The NPS Vatsalya Scheme offers the following investment choices:

• Default Choice: Moderate Lifecycle Fund - LC-50 (50% equity).
• Auto Choice: Aggressive Lifecycle Fund - LC-75 (75% equity), Moderate Lifecycle Fund - LC-50 (50% equity), or Conservative Lifecycle Fund - LC-25 (25% equity).
• Active Choice: Parents can actively decide the allocation of funds across equity (up to 75%), government securities (up to 100%), corporate debt (up to 100%), and alternate asset (up to 5%).

How to Invest in NPS Vatsalya Scheme?

The parents or guardians can open the NPS Vatsalya Scheme on the eNPS website or through the authorised Point of Presence (POP). After they open the account, they can make contributions to it through the eNPS website or the authorised Point of Presence (POP) where they opened the account.

Withdrawal and Exit Rules of NPS Vatsalya

NPS Vatsalya Scheme provides for partial withdrawal before the child turns 18 years old. The conditions for partial withdrawal from the NPS Vatsalya account are as follows:

• Parents or guardians can withdraw after 3 years of joining NPS
• They can withdraw up to 25% of contributed amount
• Withdrawal option is available only 3 times till the child turns 18
• They can withdraw for the purposes of education, disability of more than 75%, treatment of specified illnesses, etc., as specified by the PFRDA 

Once the child reaches the age of majority (18 years), the NPS Vatsalya Scheme can be converted into a regular NPS account, which can be managed by the child independently. However, the subscriber (minor) must do a fresh KYC within 3 months of turning 18 years old. The accrued contribution amount in the NPS Vatsalya amount will be transferred to the standard NPS account. 

The child can also choose to exit from the NPS Vatsalya account once he/she turns major instead of converting it to a standard NPS account. The conditions for withdrawal of the NPS Vatsalya account amount upon exit are as follows:

• At least 80% of the accumulated corpus is to be re-invested into an annuity plan and the remaining 20% can be withdrawn as a lump sum
• If the accumulated corpus is less than Rs.2.5 lakh, the entire amount can be withdrawn as a lump sum

In case of unfortunate death, the NPS Vatsalya Scheme rules are as follows:

• Death of the subscriber (minor child): The entire corpus will be returned to guardian, i.e. the nominee
• Death of guardian: Another guardian should be registered under the scheme through fresh KYC
• Death of both parents: Legal guardian of the child can continue the scheme without making contributions until child attains 18 years

Benefits of NPS Vatsalya Scheme

• The NPS Vatsalya Scheme will promote savings habits in children because when the children turn 18, the account can be converted to a standard NPS scheme. Thus, they can manage it and contribute to the account independently.
• The NPS scheme offers portability, i.e., it allows a person to change jobs without any impact on the NPS account. Thus, an NPS Vatsalya account can be converted to an NPS account when the child reaches majority, which can be continued for the child’s lifetime and form a good retirement corpus. 
• It helps children understand the concept of pension and fosters financial literacy at an early age.
• The NPS Vatsalya account is a good retirement fund option since contributions to the account begin when the child is a minor. Thus, a huge amount will be accumulated at the time of the child’s retirement. At the time of retirement, one can withdraw 60% of the accumulated amount in the NPS account. 
• When the child turns major, the NPS Vatsalya account can be converted into a standard NPS account. Thus, when the child grows up and reaches retirement age, he/she can receive good returns to lead a comfortable retirement life, as he/she must allocate 40% of the accumulated NPS amount to an annuity plan.
• Since the NPS Vatsalya account is opened when the child is a minor, it provides the benefit of having a huge corpus amount at the time of retirement. This also emphasises early savings habits in children and pushes them to start investments early in life to get good returns.
• The NPS Vatsalya Scheme teaches children responsible financial planning and prudent financial management from a young age. It promotes savings habits as they enter adulthood, as the NPS Vatsalya account is converted into a standard NPS account upon attaining 18 years, and the child can start contributing to the account independently. 
• NPS Vatsalya offers families a systematic approach to ensuring their children’s future financial security. 
• NPS Vatsalya Scheme is a valuable tool for securing a child’s financial stability and developing a retirement corpus.

The NPS Vatsalya scheme promotes the culture of savings from an early age. Through this scheme, the government aims to ensure that children develop saving habits and also benefit from long-term wealth accumulation through the power of compounding. 

Since the NPS Vatsalya account will be transitioned seamlessly to the NPS Tier-I account upon the attainment of 18 years of the child, it provides robust investment opportunities and financial security. It promotes the government's commitment to enhance financial planning and provide a dignified future for all citizens, resulting in comprehensive financial well-being across generations.

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