Finance Minister Nirmala Sitharaman proposed introducing a new scheme, NPS Vatsalya, in her Budget 2024 speech. This scheme will be a National Pension Scheme (NPS) for minors, allowing parents to contribute a certain amount on behalf of their children towards NPS to secure their future and help them develop a retirement fund.

What is the NPS Vatsalya Scheme?

The NPS Vatsalya Scheme proposed in Budget 2024 enables parents and guardians to start a National Pension Scheme (NPS) for their children. Under this scheme, parents and guardians can open an account for their children and contribute an amount every month or year till the child reaches 18 years.

Once the child reaches the age of majority (18 years), the NPS Vatsalya scheme can be converted into a regular NPS account, which can be managed by the child independently. The accrued contribution amount in the Vatsalya amount will be transferred to the standard that account when the child reaches the age of 18 years.

The Vatsalya scheme will be a variant of the existing, tailored explicitly for young individuals. This scheme allows parents to open accounts for their children and contribute towards their retirement savings.

The scheme introduced by the Central Government provides pension income to individuals to support their retirement needs. Thus, the Vatsalya scheme is one of the finest retirement options, guaranteeing the child’s financial security. 

Who is eligible?

All parents and guardians, whether Indian citizens, NRIs, or OCIs, are eligible to open an NPS Vatsalya account for their minor children. 

Benefits

• The Vatsalya Scheme will promote savings habits in children because when the children turn 18, the account can be converted to a standard scheme. Thus, they can manage it and contribute to the account independently.
• The scheme offers portability, i.e., it allows a person to change jobs without any impact on the account. Thus, an Vatsalya account can be converted to an account when the child reaches majority, which can be continued for the child’s lifetime and form a good retirement corpus.
• The Vatsalya account is a good retirement fund option since contributions to the account begin when the child is a minor. Thus, a huge amount will be accumulated at the time of the child’s retirement. At the time of retirement, one can withdraw 60% of the accumulated amount in the account. 
• When the child turns major, the Vatsalya account can be converted into a standard account. Thus, when the child grows up and reaches retirement age, he/she can receive good returns to lead a comfortable retirement life, as he/she must allocate 40% of the accumulated amount to an annuity plan.
• Since the Vatsalya account is opened when the child is a minor, it provides the benefit of having a huge corpus amount at the time of retirement. This also emphasises early savings habits in children and pushes them to start investments early in life to get good returns.
• The Vatsalya Scheme teaches children responsible financial management from an early age. It promotes savings habits as they enter adulthood, as the Vatsalya account is converted into a standard account upon attaining 18 years, and the child can start contributing to the account independently. 
• Vatsalya offers families a systematic approach to ensuring their children’s future financial security. 
• Vatsalya Scheme is a valuable tool for securing a child’s financial stability and developing a retirement corpus. 

Applicability

The NPS Vatsalya Scheme applies to all parents and guardians of minor children. However, once the child reaches 18 years, the Vatsalya Scheme will be converted to a standard account. This scheme expands the NPS to cover minor children, providing families with a fresh investment option for their children’s financial security and retirement.

How to Open/Apply?

The Central Government is expected to provide the Vatsalya opening or application process soon. However, it is most likely possible that the Central Government may provide an option to apply for Vatsalya Scheme on the official eNPS website. The Central Government may also provide an option to open and contribute to the Vatsalya Scheme through certain banks’ internet banking portal.

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