NPS Vatsalya: How to invest, eligibility criteria, and online buying guide

NPS Vatsalya enables parents or guardians to open a pension account for minors and contribute as little as Rs 1,000 annually, making it accessible to families from various economic backgrounds.

In Short

• PRAN cards issued to registered minors
• Parents can contribute as low as Rs 1,000 annually
• Withdrawals allowed after 3-year lock-in period

The Union Finance Minister, Nirmala Sitharaman, launched the NPS Vatsalya scheme that offers a pension account for minors and comes with an online platform to make it easier to subscribe.

During the launch, the minister issued Permanent Retirement Account Number (PRAN) cards to newly registered minors.

The NPS Vatsalya scheme is designed to help parents save for their children’s future by creating long-term financial security.

Managed by the Pension Fund Regulatory and Development Authority (PFRDA), it allows families to invest for their children's future starting at a young age, offering them the power of compounding over time.

NPS Vatsalya enables parents or guardians to open a pension account for minors and contribute as little as Rs 1,000 annually, making it accessible to families from various economic backgrounds.

This flexibility in contributions, along with investment choices, helps build long-term wealth for the child. The idea is to ensure financial security as the child grows older, with the pension account providing significant savings over time.

Withdrawal, exit, and death rules

According to information available on the Central Bank of India’s website, the NPS Vatsalya scheme allows withdrawals under certain conditions. Here are the main points:

• Withdrawal: After a lock-in period of three years, withdrawals of up to 25% are allowed for specific purposes like education, illness, or disability. This can be done a maximum of three times.

• Exit: Once the minor turns 18, the NPS Vatsalya account automatically transitions to an NPS Tier-I account under the ‘All Citizen’ category.

  • If the total savings (corpus) is more than Rs 2.5 lakh, 80% must be used to purchase an annuity, and 20% can be withdrawn as a lump sum.
  • If the corpus is Rs 2.5 lakh or less, the entire amount can be withdrawn as a lump sum.
• Death of the minor: In case of the minor’s death, the entire corpus will be returned to the guardian.

As highlighted on the Reserve Bank of India’s website, here are the main features of the NPS Vatsalya scheme:

• Eligibility: Any minor citizen (up to 18 years old) can participate.
• Account operation: The pension account is opened in the name of the minor and managed by the guardian.
• Beneficiary: The minor is the sole beneficiary of the account.

How to open NPS Vatsalya account

The NPS Vatsalya account can be opened both offline and online. Parents or guardians can visit designated Points of Presence (POPs) such as major banks, India Post offices, and pension funds.

Additionally, an online option is available through e-NPS, making the process more convenient for users.

CAMS, a major service provider for NPS, recently sent an SMS to NPS investors saying, “NPS Vatsalya Scheme for minors is being launched today. The scheme allows you to open an account for your child's secure future. This scheme, regulated by PFRDA, provides a range of investment choices and NPS benefits from a young age.”

Documents required to open NPS Vatsalya account

To open an NPS Vatsalya account, the following documents are needed:

1. Proof of identity and address for the guardian.
2. Date of birth proof for the minor.
3. If the guardian is an NRI, an NRE/NRO bank account (solo or joint) in the minor's name is required.

Investment choices in NPS Vatsalya

Guardians can select a PFRDA-registered pension fund for the minor’s NPS Vatsalya account. The scheme offers a variety of investment options:

• Default choice: Moderate Life Cycle Fund (LC-50) where 50% of the investments go into equities.

• Auto choice: Guardians can select from different life cycle funds:

  • Aggressive LC-75 (75% equity)
  • Moderate LC-50 (50% equity)
  • Conservative LC-25 (25% equity)

• Active choice: Guardians can actively decide how to allocate funds across different categories:

  • Equity (up to 75%)
  • Corporate debt (up to 100%)
  • Government securities (up to 100%)
  • Alternate assets (up to 5%)