Mutual Funds vs NPS Vatsalya: When planning for a child's future, making informed investment decisions is crucial. The recently launched National Pension System Vatsalya (NPS Vatsalya) scheme aims to enhance children's prospects, while mutual funds are already well-established. This raises the question of which investment option is more beneficial. Financial experts note that these two schemes serve different purposes, and the best choice depends on your financial goals, risk tolerance, and tax considerations. While mutual funds may offer higher returns, the NPS Vatsalya scheme features lower costs.
NPS Vatsalya vs Mutual Funds
The NPS Vatsalya Yojana is a pension scheme designed for children, allowing parents to open pension accounts on behalf of their children and invest for their future. Contributions to this scheme benefit from compound interest. An account can be opened with a minimum annual contribution of Rs 1000, with no maximum limit on investment.
NPS Vatsalya will allow parents to save for their children’s future by investing in a pension account and ensure long-term wealth with the power of compounding. NPS Vatsalya offers flexible contributions and investment options, allowing parents to make an investment of Rs 1,000 annually in the name of the child, thus making it accessible to families from all economic backgrounds.
On the other hand, children's mutual funds are meant for long-term wealth creation. These schemes have a lock-in period of at least five years or until the child attains majority, whichever is earlier. The minimum investment amount is Rs 100 per month.
Which is better?
Financial experts highlight that NPS offers diversification across equities, corporate bonds, and government securities. In contrast, mutual funds allow investors to select schemes based on their risk appetite—equity funds carry higher risk but also the potential for greater returns.
Generally, mutual funds have a higher potential for returns. Both NPS and equity mutual funds are solid choices for long-term wealth creation. The decision between the two should consider factors like financial goals, risk tolerance, investment duration, and tax benefits.
