Want to give your child a head start in life? A secure financial future can open doors to endless possibilities. PFRDA launched the NPS Vatsalya scheme this September, offering parents and guardians a simplified and structured approach to establishing a robust financial foundation for minors. The beauty of NPS Vatsalya is that early investments can yield impressive returns due to the power of compounding.

Why Consider NPS Vatsalya?

Early investing is a game-changer. The ability to compound your investment from the moment of your child’s birth, which allows for potential exponential growth over time, is one of the biggest benefits of this pension plan. It gives you the advantage of picking your investment path and the ability to take advantage of compound interest, which can greatly grow your investment.

Affordable and Accessible Contributions: The NPS Vatsalya scheme offers affordable and accessible contributions starting at a minimum of ₹1,000 per year. This makes it suitable for individuals across all financial backgrounds. Contributions have no maximum limit, giving those who want to contribute more freedom to do so. This enables families from all income levels to secure their children’s financial future.

Smooth Transition to Adult Financial Planning: Upon turning 18, their financial journey continues as the NPS Vatsalya account then converts to a standard NPS account. By doing this, the child, who is now an adult, can prolong their financial security well into adulthood by continuing to make pension contributions.

How NPS Vatsalya Works

Creating an account is simple. NPS Vatsalya works by allowing parents or guardians (even NRIs or OCIs) to open a pension account for a minor child. This allows minors to gain early access to the pension planning system, which was previously only available to adults. NPS Vatsalya delivers a variety of investment avenues tailored to different risk appetites and financial objectives. They are:

Life Cycle Fund (LC-50): This is a default option, LC-50, here the investor can choose to invest 50% of the investment in equities, providing a balanced exposure to growth potential and stability.

Auto Choice: Investors here can choose between more aggressive strategies like LC-75 (75% equity exposure) and more conservative options like LC-25 (25% equity exposure), depending on their level of comfort with market risk.

Active Choice: For investors with extensive market knowledge, the Active Choice option allows them to tailor their portfolio by including exposure to corporate debt, government securities, and even alternative assets.

Through regular contributions for long-term growth NPS Vatsalya’s simplicity allows parents to make contributions based on their financial capabilities, ensuring that investments grow steadily over time.

Rule for Withdrawal and Exit

NPS Vatsalya provides some flexibility, which comes in the form of partial withdrawals, but this is applicable after the account has been active for three years. Up to 25% of the corpus is eligible for withdrawal for specific reasons, which could be for education, medical emergencies, or disabilities. This provision enables families to use accumulated funds for important life events while maintaining the overall investment strategy.