NPS Vatsalya Scheme – Should you Invest?

NPS Vatsalya Scheme is a new scheme announced in the Budget 2024. NPS Vatsalya Plan is specially designed for children. Under the NPS scheme, parents can opt for the Vatsalya Scheme and contribute to securing the future of their children. This account can be converted to a normal NPS account once the child attains the age of 18. So, now there are two investment schemes for children launched by the government of India – NPS Vatsalya and Sukanya Samriddhi Scheme.

In this post, let’s try to understand the key features and benefits of the NPS Vatsalya Scheme in Detail.

What is NPS Vatsalya Scheme?

A new scheme called NPS Vatsalya has been introduced by the government in the Budget 2024. It is a scheme under the National Pension Scheme (NPS). It is launched to help parents and guardians in preparing for their children’s future financial requirements. Under this scheme, parents or guardians can open an account for their minor children and make contributions towards their retirement savings. The accumulated money will grow under NPS until the child reaches the age of 18. When the child becomes an adult, the total sum will be moved to the regular NPS account. This plan could be easily switched to a non-NPS plan once the child reaches adulthood.

NPS Vatsalya is more than just a pension scheme; it’s a pathway to instilling financial discipline and security from a young age. By opening an NPS account for your child, you position them for a future where financial stability is within their grasp.

Why Choose NPS Vatsalya?

1. Early Savings Cultivation: Begin your child’s journey to financial independence early, ensuring a substantial retirement fund by the time they need it.
2. Seamless Transition: The transition to a regular NPS account at 18 ensures continuity in savings, making financial management a breeze for young adults.
3. Retirement Planning from the Start: Introduce your child to the importance of retirement planning early, setting the stage for a secure financial future.
4. Foundation for Financial Wellness: NPS Vatsalya lays the groundwork for financial wellness, teaching valuable lessons in savings and investment.

Investments Within NPS Vatsalya

The scheme offers various investment options to cater to different risk appetites—from equity funds aiming for higher returns to government bonds for those seeking stability. This flexibility ensures that there’s a suitable option for every guardian’s strategy for their child’s future.

• Equity Funds: Higher risk can potentially lead to higher returns.
• Corporate Bonds: A moderate approach balancing risk and returns.
• Government Bonds: Lower risk with more stable returns.

Choosing the right option depends on your comfort level and your child’s future financial goals. Empowering Financial Literacy Starting early isn’t just about contributions; it’s also about educating your children about money management.

Open Conversations: Talk to your children about finances, explain the importance of saving and investing.

Age-Appropriate Resources: Utilize books, websites, and even interactive apps to make learning about finance fun and engaging.

Financial Literacy Programs: Explore educational programs designed to equip kids with essential financial knowledge.

Every minor has the right to a secure future, with enrolment facilitated through parents or guardians.

NPS Key Features  

• Pension – The NPS scheme is introduced by the Central Government to provide pension income to individuals to support their retirement needs. 
• Choice of Investment Options – NPS offers a choice of investment options such as equity, corporate bonds, and government bonds.
• Fund Management – NPS has fund management where the fund manager manages funds.
• SIP Option – NPS offers SIP option so that systematic investment can be done every month to build a retirement corpus.
• Nomination Facility – Nomination facility is offered.
• Online Tracking – Online Tracking of funds can be done to check current value.

Eligibility

• Indian Citizens living within India or abroad can apply for this scheme.
• The Age of the applicant should be 18 to 70 years.
• KYC needs to be done to open this account.
• In the case of NPS Vatsalya, the type of account and details of the child need to be provided.

How to Apply?

The NPS Vatsalya opening or application process is anticipated to be made available by the Central Government in the near future. Nevertheless, there is a good chance that the Central Government will offer the opportunity to enroll in the NPS Vatsalya Scheme through the official eNPS website. The option to open and contribute to the NPS Vatsalya Scheme through specific banks’ Internet banking portals may be offered by the Central Government.

NPS Vatsalya Scheme Review – Should you Invest?

The main concept of the NPS Vatsalya scheme is to assist parents and guardians in planning for their children’s future financial needs.

Children Financial Needs

• NPS is primarily a retirement scheme for the pension. Parents usually plan for the education and marriage of their children in advance. In India, people are not doing even retirement planning for themselves, so it is difficult to digest that people opt for NPS Vatsalya for the retirement planning of their children.
• If NPS Vatsalaya is launched for the education purpose of children current NPS scheme has shortcomings. NPS does allow partial withdrawal but only 25% of the contribution after 3 years of joining the scheme. One can exit from NPS after 5 years but 20% of the corpus can be withdrawn tax-free remaining amount needs to be invested in the annuity scheme. If the corpus is below 2.5 Lakh it can be withdrawn prematurely. The long lock-in period and tax benefits make NPS Vatsalya not suitable for children’s education purposes.

Alternative Options

• The Sukanya Samriddhi Scheme is a much more lucrative option compared to NPS Vatsalya. Although the Sukanya Samriddhi Scheme offers fixed returns, however, it allows withdrawals up to 50% for education or marriage purposes. The interest component is also tax-free under this scheme. One can make use of the Sukanya Samriddhi scheme along with Equity Mutual Funds or other investment options for the child’s education and marriage purposes.
• Equity Mutual Fund is another option for child education as well as for retirement purposes. Equity Mutual Funds offer very good returns to the investors and for the long term, it is a very good option. Equity Mutual funds come without any locking. Yes, You need to pay long-term capital gain tax on the equity mutual funds.
• PPF or Public Provident Fund is also a good investment option for the long term. It offers a fixed return but interest earned in PPF is tax free. PPF has a long lock-in period of 15 years however, you can mix PPF and other investment options to generate a long-term corpus for your children’s education, marriage, or financial future.