Finance Minister Nirmala Sitharaman will launch the much-anticipated NPS Vatsalya Scheme on Wednesday, September 18. This initiative, introduced in Budget 2024, aims to financially secure children’s future by encouraging guardians to invest in a pension account on their behalf.

The scheme will be unveiled at an event in New Delhi at 3 pm, with 75 locations virtually joining the launch.

What is the National Pension System (NPS) Vatsalya?

NPS Vatsalya is a new pension scheme designed for minors. It allows parents and guardians to invest as little as ₹1,000 annually in a child’s future, making it accessible to families across all income levels.

Through long-term investments, the scheme aims to generate wealth with the power of compounding.

Children who are enrolled will receive PRAN cards (Permanent Retirement Account Number) as part of their initiation into the National Pension System (NPS).

Who can open an NPS Vatsalya account?

Indian citizens can open an NPS Vatsalya account for their children. Guardians of minors are also eligible.

Once the child turns 18, the account can be seamlessly converted into a regular NPS Tier-I account.

Investment options

Parents can choose from a range of investment options while managing their child’s account:

Default Choice: Moderate Life Cycle Fund (LC-50) with 50% equity exposure.

Auto Choice: Ranges from Aggressive (LC-75) to Conservative (LC-25).

Active Choice: Guardians can customise fund allocation, with up to 75% equity exposure and various options for corporate debt, government securities, and alternative assets.

The minimum contribution is ₹1,000 per year, with no upper limit on contributions.

Returns and growth potential

According to SBI Pension Fund data, investing ₹10,000 annually for 18 years can lead to substantial wealth accumulation.

Here are some illustrative examples based on different rates of return (RoR):

Corpus at age 18: ₹5 lakh (RoR 10%)

Corpus at age 60:

• ₹2.75 crore (RoR 10%)
• ₹5.97 crore (RoR 11.59%)*
• ₹11.05 crore (RoR 12.86%)

(*These calculations are based on historical data and estimates, and actual returns may vary.)

Death and succession rules

In case of the death of a subscriber, the entire corpus is returned to the guardian, who is the registered nominee.

If the guardian passes away, another guardian can be appointed through fresh KYC. If both parents die, a legal guardian can continue the contributions or wait until the child reaches 18 without making further investments.

After turning 18

Once the child reaches adulthood, the NPS Vatsalya account transitions into a regular NPS Tier-I Account. Key options include:

Continuing the account: Subscribers can continue investing beyond 18 years with a fresh KYC within three months.

Exiting NPS: Subscribers can exit by reinvesting 80% of the corpus into an annuity plan and withdrawing 20% as a lump sum.

If the total corpus is less than ₹2.5 lakh, the entire amount can be withdrawn.