The Pension Fund Regulation and Development Authority (PFRDA), celebrates October 1 as NPS Diwas. Ahead of this, the pension regulator has launched an innovative pension scheme tailored for children—NPS Vatsalya.

As India stands as the world’s most populous country with the largest cohort of young individuals under 18, NPS Vatsalya allows parents to start saving for their child’s pension at a very early age so as to take advantage of compounding.

Speaking to CNBC-TV18, Deepak Mohanty, Chairman of PFRDA, noted that within just ten days of its launch, NPS Vatsalya has attracted around 27,000 children, the majority of whom have joined through the eNPS platform, a self-initiated digital enrolment system.

He emphasised that India’s youthful demographic makes this the ideal time to inculcate a saving habit. “Given that we are the most populous, youngest country on the planet, this is a time to inculcate in children the habit of saving and social security,” he stated.

When questioned about the scheme’s investment structure, particularly for young entrants, Mohanty clarified that the investment pattern mirrors that of the adult National Pension Scheme (NPS). He highlighted that the maximum equity exposure in NPS remains capped at 75%, which applies to Vatsalya as well.

“A scan of global patterns shows no pension fund allowing 100% equity,” Mohanty explained, citing that this approach aligns with maintaining a balance between risk and reward, even for younger participants. Despite this, individuals can maintain a 75% equity allocation throughout their lifetime, providing ample growth potential, he said.

The returns on NPS have been highly competitive, with equity investments generating an average of 14.5% annually since inception. This year, in particular, has been promising, delivering an impressive 37% return on equity investments. On the debt side, government securities within NPS are offering returns of 11.2%, Mohanty highlighted.

Below are the excerpts of the interview.

Q: It has been about ten days since you launched the NPS Vatsalya scheme. How has it been doing?

Mohanty: It’s doing pretty well. Currently, we have about 27,000 children onboarded into NPS Vatsalya. And, most of them are doing this through eNPS, which is a self-initiated process that they’re doing. I think it’s a good trend, given in terms of demography where we are. We are the most populous, youngest country on the planet. And this is a time to inculcate in children the habit of saving and social security.

Q: If it is a Vatsalya scheme, if you’re entering when the child is like five years or 10 years old, should you not give 100% equity? I mean, there’s no reason why a child should be in a debt scheme?

Mohanty: The investment pattern remains exactly the same as it did for the NPS adults. If somebody goes in for active choice and he says I prefer equity, then the maximum that one can put in equities is 75%. Since it’s a pension kitty, this is a reasonable ballpark in which we can put equity. A scan of the global pattern also shows what we see is we don’t find anywhere 100% equity for a pension fund. So 75% is good enough and children they can go for active all through their life. They can have 75% till they are 70 years old.

Considering the longevity, one can even open an NPS account fresh at the age of 70. So now with the Vatsalya coming, the range has widened from zero years to 70 years one can open an NPS account.

Q: Can you give us more numbers in terms of what is the return that has been coming from NPS? Is it comparable to the private sector participants?

Mohanty: NPS returns have been very competitive. In NPS, one can do equity and debt and a combination of all that.

Q: So how much is the equity return?

Mohanty: Since inception, equity returns have been about 14.5% per annum. Even in the current year, the equity market has done pretty well, and the return that the NPS has given is about 37% this year.

The interest rates are also coming down on the debt side. This year, the G-SEC portfolio in the NPS is also giving about an 11.2% annual return. There is pretty good return across the debt and equity segments this year.

If you take, for example, the government scheme, which is a very conservative scheme with equity about 15%, balance is debt, that has since inception for central government has given annual return of 9.6%.

Q: It is taxed at the hands when the individual receives it?

Mohanty: No it is very tax efficient as it is exempt. As NPS stands now, at retirement one would have to annuities 40%, and 60% you can do a lump sum and both are tax exempt.

Q: Much less is known about how much pension and PFRDA have spread their reach. Can you tell us the numbers? How many account holders in Atal Pension Yojana and in NPS? What is the kitty? Just some numbers.

Mohanty: The total number of subscribers at the moment that we have is about 7.8 crore but the numbers are again driven by Atal Pension Yojana (APY) which is a low ticket pension scheme of between ₹1,000 to ₹5,000 and this is again aimed at low-income, deprived sections of the society. So there we have got about 5.9 crore active accounts.

When you talk of NPS as such, we have about 1.54 crore NPS accounts. NPS started for the government employees post-2004 who joined. So about 94 lakh of them we have. And then we have about 60 lakh of private, which means the corporate. And for that matter, anybody can join NPS, the common person, put together. So that’s the kind of a number. And corpus, currently it’s about 13.3 lakh crore growing at a compounded annual growth rate of about 30% per annum. So that is where we are.

Of course, since APY is a small-ticket pension scheme, so the corpus is about ₹41,000 crore.

Watch the accompanying video for entire conversation