Union Finance Minister Nirmala Sitharaman announced the NPS Vatsalya Scheme in her 2024-25 Budget speech in parliament earlier this week. NPS Vatsalya will allow parents to open an account in the name of their minor children, allowing them to save money from an early age. This additional feature gives the National Pension System (NPS) a significant momentum in the government’s efforts to secure the financial security of ordinary citizens in old age.

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Salient features of NPS Vatsalya Account:

• Parents or guardians can open the account on behalf of minor children.So, the lower age limit to enter the scheme has been reduced from 18 earlier.
• The account can be transferred to the child after attaining adulthood (18 or above).
• Resident, non-resident Indians (NRIs), and Overseas Citizens of India (OCIs) can open the account.

When Will NPS Vatsalya be available? 

There is no clarity yet regarding itsroll out to the public. The Pension Fund Regulatory and Development Authority (PFRDA is expected to provide the details in the coming weeks.

What Is National Pension System (NPS)?

NPS was initially launched in 2004 for the government employees to replace the old pension scheme (OPS). In 2009, it was made available to all Indian citizens. PFRDA is the implementing agency which is responsible for all its regulatory provisions. Thispension scheme has seen significant growth in recent years. For example, its all-citizen model subscribers grew about three times from 12.52 lakh on March 31, 2020, to 35.64 lakh on March 31, 2024. PFRDA has recently introduced several changes to NPS to make it an effective retirement planning tool.

Long-Term Financial Planning For Children

NPS is a market-linked investment vehicle. It is flexible yet can help build a robust corpus over the long term. The launch of NPS Vatsalya has also opened the doors for minor children to start saving in NPS, initially with parents’ support until they reach the eligible age of 18. The NPS Vatsalya scheme provides another advantage, too. It will help them inculcate the saving habit at a young age and become financially literate and responsible citizens. One can open an account with a contribution of just Rs 500 monthly or Rs 6,000 annually. NPS allows you to grow wealth at a compounding rate; thus, it helps accumulate a robust sum by retirement.

NPS contributions are exempt from income tax up to a specified limit. On maturity, withdrawals of up to 60 per cent of the funds are tax-exempt and allowed in lumpsum or systematically at intervals. The remaining 40 per cent must be invested in an annuity. Pension income is taxed.

Also Read: Budget 2024: Employers’ Contribution In NPS Hiked To 14%; What It Means For Subscribers?

Other Options for Minors

Public Provident Fund (PPF):PPF is another investment tool that allows parents to open account on behalf of minors. However, it has a 15-year lock-in, with the option to renew it in blocks of five years. One can start with a minimum investment of Rs 500, the minimum threshold to keep the account active. PPF offers guaranteed returns and enjoy the exempt-exempt-exempt tax status.

Bank Fixed Deposits: FDs are open for all age groups. One can open FDs with a minimum of Rs 1,000. Due to their flexible investment options, many people invest in FDs for their children. One can also invest in mutual funds in the name of minors.