A Parent’s Guide to the NPS Vatsalya Scheme: Benefits, Process, and More

As part of the 2024 Union Budget, Finance Minister Nirmala Sitharaman introduced the NPS Vatsalya Scheme, officially launched on 18 September 2024. This innovative scheme extends the benefits of the National Pension System (NPS) to minors, allowing parents to invest in their children’s future by contributing to an NPS account on their behalf. The goal is to help minors build a robust retirement corpus early in life, ensuring long-term financial security.

Explore the complete details of the NPS Vatsalya Scheme, including its eligibility requirements, advantages, and how it helps you safeguard your child’s financial future.

What is NPS Vatsalya Scheme?

The NPS Vatsalya Scheme, introduced in the 2024 Budget, allows parents and guardians to open a National Pension Scheme (NPS) account for their children. Under this scheme, they can start contributing regularly, either monthly or yearly, until the child turns 18. The minimum yearly contribution is Rs. 1,000, with no upper limit on how much can be invested.

This version of the NPS is specially designed for children, giving them a head start in building a secure retirement fund. Parents can gradually contribute towards their child’s future, helping them grow a retirement corpus over time.

As part of the broader NPS framework, which offers pension income after retirement, the NPS Vatsalya Scheme gives parents a way to plan ahead for their child’s long-term financial well-being.

Who Can Benefit from the NPS Vatsalya Scheme?

The NPS Vatsalya Scheme allows parents and guardians to open accounts for their minor children. The account will automatically convert once the child turns 18 into a regular NPS account. This scheme allows families to start investing early, helping secure their children’s financial future and retirement.

Eligibility for NPS Vatsalya

• Indian Citizens: Individuals under the age of 18 are eligible to enroll.
• Parents or Guardians: Parents or legal guardians can open and manage the NPS Vatsalya account for minors.
• NRIs and OCIs: Non-Resident Indians (NRI) and Overseas Citizens of India (OCI) under 18 years can also participate.
• Nomination and Beneficiary: Parents or guardians will be listed as nominees, while the minor child will remain the sole beneficiary under the scheme.

Key Features of the NPS Vatsalya Scheme

• Account Opening: Parents or guardians can set up an NPS Vatsalya account for their minor children, making them the sole beneficiaries of the fund.
• KYC Process: A new KYC process will be conducted when the minor reaches 18, which must be completed within three months of attaining adulthood.
• Account Operation: After completing the KYC process, the individual can manage the account independently.
• Account Management: A guardian operates the NPS Vatsalya account exclusively for the benefit of the minor until they reach the age of 18.
• Initial Enrollment: The initial contribution to enroll in the NPS Vatsalya is Rs. 1,000.
• Pension Retirement Account Number (PRAN): The Central Recordkeeping Agency (CRA) issues a unique PRAN in the minor’s name.
• Withdrawal Options: The scheme provides options for partial withdrawal and account exit.
• Transition to NPS-Tier 1 Account: Once the minor turns 18, the account transitions into an NPS-Tier 1 Account under the All Citizen Model.
• Contribution Flexibility: The minimum annual contribution is Rs. 1,000, with no maximum contribution limit.

Benefits of the NPS Vatsalya Scheme

• Encourages Saving Habits: Promotes the development of saving habits in children from a young age. When they turn 18, they can switch to a regular NPS scheme, allowing independent management of their savings. 
• Portability: Offers portability, meaning changes in jobs won’t affect the NPS account. The NPS Vatsalya account can be converted into a regular NPS account when the child reaches adulthood.
• Builds Retirement Fund: Contributions start when the child is a minor, leading to substantial savings by the time they retire. Up to 60% of the accumulated amount can be withdrawn at retirement.
• Large Corpus at Retirement: Opening the account while the child is young creates a significant savings fund by retirement. It emphasizes early savings and encourages investing early for better returns.
• Valuable Tool for Stability: The NPS Vatsalya Scheme is an effective means of securing a child’s financial stability and developing a solid retirement fund.

Required Documents for NPS Vatsalya Scheme 

To open an account under the NPS Vatsalya Scheme, the following documents are needed:

• Aadhaar Card: Mobile-linked Aadhaar Card or DigiLocker for both the minor and the guardian.
• Date of Birth Proof: Any document that verifies the minor’s date of birth (e.g., birth certificate, school leaving certificate, matriculation certificate, PAN, passport).
• Bank Account Details: While not mandatory for opening an account, bank details of the minor will be needed for partial withdrawal or exit before turning 18. Ensure the account is in the name of the individual registering for NPS. Required details include:
  • Account number
  • IFSC Code
  • Bank name
• NRE/NRO Bank Details: If the guardian is a Non-Resident Indian (NRI) or Overseas Citizen of India (OCI), their NRE/NRO bank details are mandatory.
• Cancelled Cheque or Bank Passbook: A scanned copy is required.
• PAN Card and Signature: Scanned copies of both.
• Active UPI/Internet Banking: Ensure that your UPI or Internet Banking is active for payment purposes.
• Size of Scanned Copies: Should be between 4kb to 2Mb.

Steps to Apply for NPS Vatsalya Scheme 

Parents or guardians can apply for the NPS Vatsalya Scheme online via the eNPS portal or through authorized Points of Presence (POPs) such as India Post, leading banks, and pension funds.

Here’s a simple guide to opening the NPS Vatsalya account online:

Step 1: Go to the eNPS website.

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

Step 3: Fill in the guardian’s date of birth, PAN number, mobile number, and email address, then select ‘Begin Registration’.

Step 4: An OTP will be sent to the guardian’s mobile and email. Enter this OTP to continue.

Step 5: After OTP verification, an acknowledgement number will be displayed. Press ‘Continue’.

Step 6: Provide details of the minor and the guardian, upload the required documents, and click ‘Confirm’.

Step 7: Make an initial deposit of ₹1,000.

Step 8: A Permanent Retirement Account Number (PRAN) will be issued, and the NPS Vatsalya account will be created in the minor’s name.

Investment Options in NPS Vatsalya 

The NPS Vatsalya Scheme provides the following investment options:

1. Default Option: The Moderate Lifecycle Fund – LC-50, which invests 50% in equity.
2. Active Option: Parents have the flexibility to decide how to allocate their funds. They can invest in:
   • Equity (up to 75%)
   • Government securities (up to 100%)
   • Corporate debt (up to 100%)
   • Alternate assets (up to 5%)
3. Auto Option: You can choose from three lifecycle funds:
   • Aggressive Lifecycle Fund – LC-75 (75% in equity)
   • Moderate Lifecycle Fund – LC-50 (50% in equity)
   • Conservative Lifecycle Fund – LC-25 (25% in equity)

Withdrawal and Exit Rules for NPS Vatsalya

The NPS Vatsalya Scheme allows for partial withdrawals before the child turns 18. Here are the conditions for withdrawing from the NPS Vatsalya account:

Conditions for Partial Withdrawal

1. Eligibility for Withdrawal: Parents or guardians can make withdrawals after 3 years of joining the NPS.
2. Withdrawal Amount: They can withdraw up to 25% of the total contributions made.
3. Withdrawal Limit: Withdrawals are allowed only 3 times until the child reaches 18.
4. Purpose of Withdrawal: Withdrawals can be made for reasons such as education, severe disabilities (more than 75%), and treatment for specific illnesses, as defined by the PFRDA.

Conversion to Standard NPS Account

Once the child turns 18, the NPS Vatsalya Scheme can be converted into a standard NPS account, which the child can manage on their own. However, the minor must complete a new KYC process within 3 months of turning 18. The accumulated amount in the NPS Vatsalya account will be transferred to the regular NPS account.

Option to Exit

The child also has the option to exit the NPS Vatsalya account once they reach adulthood instead of converting it. The rules for withdrawal upon exiting are:

1. Annuity Requirement: At least 80% of the total amount must be invested in an annuity plan, while the remaining 20% can be withdrawn as a lump sum.
2. Small Balance Withdrawal: If the total amount is less than ₹2.5 lakh, the entire amount can be withdrawn as a lump sum.

Rules in Case of Unfortunate Events

In the event of unfortunate circumstances, the rules are as follows:

• If the minor subscriber passes away: The entire accumulated amount will be returned to the guardian (the nominee).
• If the guardian passes away: Another guardian must be registered under the scheme through a new KYC process.
• If both parents pass away: A legal guardian can continue the scheme without making any contributions until the child turns 18.

NPS Vatsalya Investment Projections

If parents contribute ₹10,000 each year for 18 years, their investment can grow significantly. Here’s what that could look like with different rates of return (RoR):

• At a 10% Expected Return:
  After 18 years, the total amount might reach around ₹5 lakh. If this amount continues to grow until the child is 60, it could turn into about ₹2.75 crore.
• With an 11.59% Return:
  If the investment is divided as 50% in stocks, 30% in corporate bonds, and 20% in government bonds, the total by age 60 could be around ₹5.97 crore.
• If the Return is 12.86%:
  With a more aggressive approach, investing 75% in stocks and 25% in government bonds, the final amount could rise to about ₹11.05 crore when the investor turns 60.

The NPS Vatsalya Scheme is a valuable tool for parents who want to start building a secure financial future for their children. By contributing as little as ₹1,000 annually, families can create a substantial retirement corpus that grows as the child matures. With its flexible withdrawal options, investment choices, and long-term benefits, the NPS Vatsalya Scheme is designed to give minors a head start in securing their future financial stability. Parents can rest assured that they’re taking the right steps to ensure their child’s financial independence and security, starting today.