NPS Vatsalya, a new initiative under the National Pension System (NPS), aims to secure the financial future of children. Launched by Union Finance Minister Nirmala Sitharaman on September 18, 2024, this scheme is designed to help parents build a substantial retirement corpus for their children from an early age. Managed by the Pension Fund Regulatory and Development Authority (PFRDA), the scheme was announced in the July Budget 2024.
“Through this scheme, parents or guardians can create a retirement corpus for their children from childhood until they turn 18. The account is opened in the minor’s name and operated by the guardian, with the minor being the sole beneficiary,” explained Kurian Jose, CEO of Tata Pension Management.
Eligibility for NPS Vatsalya
All minors up to the age of 18 are eligible to participate in the NPS Vatsalya scheme.
NPS Vatsalya Contribution
To open a Vatsalya account, a minimum initial contribution of ₹1,000 is required, followed by annual contributions of ₹1,000.
How to Open an NPS Vatsalya Account
Parents can open the account at registered points of presence such as banks, post offices, and pension funds, either online or in person. The account can also be opened through the NPS Trust’s eNPS platform. Banks like ICICI Bank and Axis Bank are partnering with the PFRDA to facilitate the NPS Vatsalya initiative.
Transition After Turning 18
Once the child turns 18, the NPS Vatsalya account will automatically convert to a regular NPS Tier I account. This transition allows the account holder to access all investment features available under the NPS Tier I (All Citizen) plan, including Auto Choice and Active Choice. This process is designed to promote early investment and structured savings, fostering a solid financial foundation for young individuals.
Kurian Jose highlights that this approach instills disciplined saving habits and compounding benefits from a young age, nurturing financial responsibility.
Returns on NPS
Nirmala Sitharaman reported that the NPS has historically yielded returns of 14% in equity, 9.1% in corporate debt, and 8.8% in government securities.
NPS Vatsalya Calculator
By making an annual contribution of ₹10,000 for 18 years, at an expected rate of return (RoR) of 10%, the investment could grow to approximately ₹5 lakh. If the investment continues until the account holder reaches the age of 60, the corpus could significantly increase:
- At a 10% RoR, the corpus could reach around ₹2.75 crore.
- With an average return of 11.59%—based on a typical NPS allocation of 50% in equity, 30% in corporate debt, and 20% in government securities—the expected corpus could rise to about ₹5.97 crore.
- With a higher average return of 12.86% (derived from a portfolio allocation of 75% in equity and 25% in government securities), the corpus could reach ₹11.05 crore.
These projections are for illustrative purposes based on historical data; actual returns may vary.