Nirmala Sitharaman to Introduce NPS Vatsalya: A Revolutionary Pension Scheme for Minors

Synopsis: NPS Vatsalya is a forward-looking scheme designed to promote early financial planning for minors. With flexible investment options and the ability to leverage compounding over a long investment horizon, it empowers parents and guardians to secure their children's financial future. Upon maturity, the scheme seamlessly converts into a standard NPS account, providing long-term financial stability.

Union Finance Minister Nirmala Sitharaman is set to introduce the National Pension System (NPS) Vatsalya scheme, a special financial tool aimed at encouraging long-term investments for minors. This initiative was first unveiled during the Union Budget 2024-25 and is managed by the Pension Fund Regulatory and Development Authority (PFRDA). The scheme allows parents or guardians to open pension accounts for their minor children, making early financial planning accessible and rewarding.

Key Features of NPS Vatsalya

The NPS Vatsalya scheme is open to all Indian citizens, Non-Resident Indians (NRIs), and Overseas Citizens of India (OCI). It offers a flexible investment platform with a minimum annual contribution of Rs1,000, with no upper limit on contributions. Legal guardians can also open accounts in the name of minors, enabling families to start building a pension fund as early as infancy.

Once the child reaches 18, the NPS Vatsalya account can be converted into a standard NPS Tier-I account, providing a seamless transition to a robust retirement savings plan. Contributions can be made with as little as Rs500 per month, and the account leverages the power of compounding to maximize returns over time.

Investment Choices

Investors can choose from several fund options:

Default Choice: Moderate Life Cycle Fund (LC-50), offering a 50% equity allocation.

Auto Choice: Guardians can select from three life cycle funds—Aggressive LC-75 (75% equity), Moderate LC-50 (50% equity), or Conservative LC-25 (25% equity).

Active Choice: Allows full control over asset distribution, enabling guardians to allocate up to 75% in equities and other asset classes such as corporate debt and government securities.

Maturity and Withdrawal Options

Upon reaching the age of 18, the minor’s account matures. If the total corpus is Rs2.5 lakh or less, the full amount can be withdrawn as a lump sum. For larger accounts, 20% can be withdrawn, with the remaining 80% allocated towards an annuity plan. Additionally, partial withdrawals (up to 25% of the corpus) are allowed after three years of account initiation for specific purposes like education or medical treatment.