Union Finance Minister Nirmala Sitharaman officially launched the NPS Vatsalya scheme on Wednesday (September 18) in line with the announcement made in the Union Budget 2024.
The finance minister will also unveil an online platform for subscribing to NPS Vatsalya, release a scheme brochure, and distribute Permanent Retirement Account Number (PRAN) cards to minor subscribers.
As part of the launch, NPS Vatsalya events will be organised simultaneously at nearly 75 locations throughout the country, the ministry said in a statement on Monday. Other locations will join the launch through a video conference and also distribute PRAN membership to new minor subscribers in that location.
What is NPS Vatsalya scheme?
The NPS Vatsalya is an extension of the existing National Pension Scheme.
Managed by the Pension Fund Regulatory and Development Authority (PFRDA), the scheme will be focused on children and the investment made in this account will be to ensure long-term wealth.
Under the scheme, parents can start saving for their child’s retirement fund.
It functions similarly to the current NPS, which assists people in building a retirement fund by contributing consistently throughout the course of their careers. In contrast to conventional fixed-income alternatives, NPS contributions are invested in market-linked securities like equities and bonds, which could yield higher returns.
The launch of NPS Vatsalya underlines the Government of India’s commitment to promoting long-term financial planning and security for all. This scheme is a big step in the direction of giving India’s future generations a stable and independent financial future.
What are its features?
The goal of NPS Vatsalya’s investment strategy is to give parents the ability to invest in a pension account as a way to save for their children’s future. The strategy attempts to ensure the participants’ long-term prosperity by utilising the power of compounding.
The initiative enables parents to put as little as Rs 1,000 into their child’s name each year by providing various contributions and investment options. This means that families with varying economic origins can participate in the programme.
The scheme’s ability to allow parents to start saving for their child’s retirement at a very young age — even infancy — is one of its primary advantages. Over an extended investing term, compound interest can have a significant positive impact on earnings.
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Who is eligible?
To be eligible for NPS Vatsalya, one must be a citizen of India and the child should be under the age of 18 years.
Additionally, all parties involved must be KYC (Know Your Customer) compliant.
What are the investment choices?
Parents investing in NPS Vatsalya may select any pension fund that is registered with PFRDA.
The four investment choices, according to the Central Bank of India, are:
Default Choice: Moderate Life Cycle Fund – LC-50 (50 per cent equity)
Auto Choice: Guardian can choose Life Cycle Fund – Aggressive – LC-75 (75 per cent equity), Moderate LC-50 (50 per cent equity), or Conservative LC-25 (25 per cent equity).
Active Choice: Guardian actively decides the allocation of funds across equity (up to 75 per cent), corporate debt (up to 100 per cent), government securities (up to 100 per cent), and alternate assets (up to five per cent).
What are its withdrawal rules?
Three years after the NPS Vatsalya account is opened, there will be a partial withdrawal option.
According to the SBI Pension Fund website, up to 25 per cent of the corpus may be partially taken for PFRDA-specified uses such as education, the treatment of certain illnesses, disability of over 75 per cent, etc.
The SBI Pension Funds website states that the subscriber may use the partial withdrawal option three times till the subscriber turns 18.
What happens when the minor turns 18?
When the members reach the age of 18, they can withdraw from the NPS Vatsalya plan. The entire corpus may be withdrawn in one single sum if it is less than or equal to Rs 2.5 lakh.
According to the Central Bank of India website, if the corpus exceeds Rs 2.5 lakh, the subscriber may take out 20 per cent of the corpus as a lump amount and use the other 80 per cent to buy an annuity for recurring income.
In addition, the subscriber will have the choice to keep their NPS Vatsalya account open after turning 18.
The account will be converted to an NPS Tier I (All Citizen) regular account.
The SBI Pension Funds website states that minors must obtain a new KYC within three months of turning eighteen.
What are the rules in unfortunate cases of death?
Subscriber’s death: The entire corpus is returned to the nominee, who is the guardian.
Guardian death: A new guardian must be enrolled using a new KYC.
Both parents’ deaths: A legal guardian may keep using the service without contributing until the user reaches the age of 18.
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