Union Finance Minister Nirmala Sitharaman launched the NPS Vatsalya Scheme in July 2024 as part of the National Pension System (NPS). This scheme helps parents and guardians plan for their child’s financial future, even while the child is still a minor. It allows them to start saving early, especially for the child’s retirement.

Overview of NPS Vatsalya

Any Indian citizen, including Non-Resident Indians (NRIs), can open an NPS Vatsalya account. A legal guardian opens the account for a minor (child under 18). When the child turns 18, the account can be turned into a regular NPS account.

Key Features of NPS Vatsalya

• Start Saving Early: Parents can begin saving for their child’s future from infancy.
• Minimum Contribution: The minimum investment is ₹1,000 per year, with no upper limit on how much you can contribute.
• Compounding Benefit: The investment grows over time, as interest is earned on the initial deposit and the interest that accumulates.

Flexible Contributions

Parents can contribute as little as ₹500 per month or ₹6,000 per year, making it adaptable to different financial situations while providing growth opportunities over time.

Investment Options

Parents have different ways to invest their money:

• Default Choice: The Moderate Life Cycle Fund (LC-50), which invests 50% in stocks and 50% in other assets.
• Auto Choice: Based on risk tolerance, parents can choose from:
  • Aggressive LC-75 (75% in stocks)
  • Moderate LC-50 (50% in stocks)
  • Conservative LC-25 (25% in stocks)
• Active Choice: Parents can decide where to allocate their money, choosing from stocks, corporate debt, government bonds, and other assets.

Partial Withdrawal Rules

After three years, parents can make partial withdrawals for important needs like education or medical expenses. Up to 25% of the total amount can be withdrawn, and this can be done up to three times before the child turns 18.

Maturity and Withdrawal Options

When the child turns 18, parents can either withdraw the savings or keep the account. The withdrawal options are:

• If the total savings are ₹2.5 lakh or less: The entire amount can be withdrawn at once.
• If the total savings are more than ₹2.5 lakh: Parents can withdraw 20%, and the remaining 80% must be used to buy an annuity, which provides regular income in the future.

If the account is not closed when the child turns 18, it automatically becomes a regular NPS Tier I account, and the child must complete a new Know Your Customer (KYC) process within three months.

The NPS Vatsalya scheme offers a flexible way for parents to start saving for their child’s future, taking advantage of compounding growth and a variety of investment options. It also allows for partial withdrawals to meet immediate needs like education, while continuing to focus on long-term financial goals.