The Central government on Wednesday launched a new scheme under the National Pension System (NPS) to financially secure the future of children. Notably, the NPS Vatsalya scheme was first announced in the Budget 2024 in July. This pension scheme will be managed under the Pension Fund Regulatory and Development Authority (PFRDA) and it allows parents to invest to build a retirement corpus for their children up to the age of 18 years.
NPS Vatsalya account can be opened with Rs 10,000
In this NPS Vatsalya scheme, an account can be opened in the name of the child with a minimum of Rs 10,000 per annum. There is no maximum investment limit. This scheme comes with a stipulated period of 3 years. After that period is over, if the child is below 18 years of age, up to 25% of the total contribution can be withdrawn in circumstances like his education, illness and disability. In this way, money can be withdrawn maximum by 3 times. This account can be opened through bank, post office, online platform or e-NPS.
NPS Vatsalya account can be converted into a regular account
After completion of 18 years of age, the child's NPS Vatsalya account can be converted into a regular NPS account. Then, the child can continue his NPS account if he wants. However, it is necessary to update KYC within 3 months of completion of 18 years of age of the child.
After 18 years, at least 80% of the total amount deposited in the account will go to the annuity plan and the remaining 20 percent amount can be withdrawn in lump sum. If the total amount deposited in the account after 18 years is Rs 2.5 lakh or less, then the entire amount can also be withdrawn in lump sum.
Check how much to earn after 18 years
If parents contribute Rs 10,000 annually to their child's NPS Vatsalya account for 18 years, a fund of Rs 5 lakh will be accumulated at an estimated return of 10%. If this investment continues till the investor turns 60 years of age, a fund of Rs 2.75 crore will be accumulated based on a 10% return.
This amount will be very helpful in retirement planning. If we assume an average return of 11.59% based on 50% NPS allocation to equity, 30% allocation to corporate debt and 20% allocation to government securities, a fund of Rs 5.97 crore will be accumulated. If we assume a higher average return of 12.86% based on 75% NPS allocation to equity and 25% allocation to government securities, this investment will accumulate a fund of Rs 11.05 crore by the time the investor turns 60.
