Union Finance Minister Nirmala Sitharaman launched the NPS Vatsalya Scheme for minors and distributed the Permanent Retirement Account Number (PRAN) to nine children subscribers during an event at Vigyan Bhawan in New Delhi on Wednesday, September 18, 2024.

The children were specially invited to the event from Andhra Pradesh, Tripura, Bihar, Delhi, Madhya Pradesh, Uttar Pradesh, and other states. The NPS Vatsalya Scheme allows children below 18 to open an account in the National Pension System (NPS) under the supervision of parents or guardians. Until now, NPS was open only for people aged 18 and older.

Sitharaman first announced this scheme in the Budget 2024-25. During her speech on the occasion, Sitharaman said, “The budget speeches are not just said but they are enacted upon too.”

She said, “I invite all parents to join the scheme to make their children’s future better and financially secure.” She also appealed parents to gift the scheme as a birthday present to other children instead of other gifts when they attend those events with their child.

NPS Vatsalya Scheme Features:

* The account can be opened for a child below 18 years of age.

* Upon turning 18, the NPS Vatsalya account gets converted into a regular NPS account and will be transferred to the adult child.

* Parents and guardians can open the account in the minor’s name and contribute funds.

* It provides continuity to the retirement account after they become adult.

* An annual contribution of just Rs 1,000 is required in this scheme.

* It will have all NPS features (choice of investment, asset class, pension fund manager, etc.)

* It can be opened through Points of Presence (POPs) such as authorised banks, post offices, or online.

* Like the existing NPS scheme, Indian citizens, including non-resident Indians (NRIs) or Overseas Citizens of India (OCIs), can open an NPS Vatsalya account.

* One can withdraw up to 25 per cent of the corpus, a maximum of three times, after a 3-year lock-in for education, specific illnesses, and disability.

* Exit is allowed on reaching 18 years.

* In that case, if the corpus is over Rs 2.5 lakh, they can withdraw 20 per cent in a lump sum, and the rest must be used for buying an annuity;

* If it is less or equal to Rs 2.5 lakh, the entire amount can be withdrawn in one go. On death, the guardian can withdraw the whole corpus.

* The Pension Regulatory and Development Authority (PFRDA) will manage this scheme.

How It Can Benefit Children:

Power of Compounding: Compounding works better when there is more time to grow, so NPS Vatsalya gives a perfect opportunity to achieve important milestones. The scheme is for the long term. So, starting early in the scheme will give them a solid headstart in their NPS investment journey and grow their retirement corpus.

Early Start Is A Good Start: An early start is a good start, and as it is in the name of children, they will inculcate the habit of saving from the tender age. They can develop saving habits through this scheme, which they can take into their old age, creating a decent corpus.

Forward-Thinking Approach: It develops financial awareness and provides financial support during emergencies.

Kurian Jose, CEO of Tata Pension Management, says, “NPS Vatsalya is a new initiative within the National Pension System, dedicated to securing children’s financial future. By encouraging early investment and providing a structured savings plan, NPS Vatsalya aims to build a robust financial foundation for young individuals. This innovative approach not only ensures that children receive the benefits of disciplined saving and compounding over time but also fosters a sense of financial responsibility from an early age.

Registration:

For registration, the following documents are necessary:

• Parents’ Aadhaar or PAN card

• Minor’s proof of birth date

• Parent’s or guardian’s signature

• Scanned copy of passport (Applicable only for NRI subscribers)

• Scanned copy of foreign address proof (Only for OCI subscribers)

• Scanned copy of bank proof (Only for NRI/OCI subscribers)

A Few Facts About NPS:

NPS investments grew at a compounded annual growth rate (CAGR) of 37 per cent and has over Rs 13 lakh crore worth of assets under management (AUM).

NPS Vatsalya allows parents to start saving for their children’s future at least 15-20 years in advance. According to Sitharaman, NPS has given the government sector around 9.5 per cent CAGR since its inception. For the non-government sector, the return in the equity segment has been 14 per cent, 9.1 per cent in corporate debt, and 8.8 per cent in government securities, since inception. The scheme would allow parents to secure their children’s long-term financial future.