NPS Vatsalya Scheme Details- Know Pros & Cons before investing

Just two days back GOI opened NPS Vatsalya Scheme for subscription. NPS Vatsalya is a Contributory Pension Scheme regulated and administered by the Pension Fund Regulatory and Development Authority (PFRDA).

What is NPS Vatsalya Scheme?

NPS (National Pension System) Vatsalya is a special retirement savings scheme designed to make children ( below age 18) pension ready. Under NPS-Vatsalya parents/guardians can make regular contributions on behalf of their minor children and make them pension ready at age 60.

The minimum contribution of ₹1000 per year and no limit on the maximum contribution.

Eligibility for NPS Vatsalya

All Indian Nationals can invest in NPS Vatsalya Scheme. The eligibility conditions are as given below.

• Subscriber below 18 years of age
• Applicable for NRI & OCI Subscribers also eligible
• NRI & OCI can invest from NRE and NRO A/c. (Applicable only for NRI/OCI Subscribers)

Documents required to Open NPS Vatsalya Scheme

• Date of Birth Proof of Minor
• Guardian Signature
• Scanned Copy of Passport (Applicable only for NRI Subscribers)
• Scanned copy of Foreign Address Proof (Applicable only for OCI Subscribers)
• Scanned copy of Bank Proof (Applicable only for NRI/OCI Subscribers)

 Kindly keep the below information and documents ready

• Mobile-linked Aadhaar Card or DigiLocker of minor and guardian
• Date of Birth proof of minor (e.g., birth certificate, school leaving certificate,matriculation certificate, PAN, passport)
• Bank account details of minor (account number, IFS Code, and bank name; ensure that the bank account is in name of the individual registering for NPS)
  • In the case that the guardian is NRI or OCI, NRE/NRO Bank details of guardian are mandatory
• Scanned copy of cancelled cheque or bank passbook
• Scanned copies of your PAN Card and signature
• Ensure your UPI or Internet Banking is active (for payment purposes)

NPS Vatsalya Registration Online

1. Go to eNPS website. 
2. Find NPS Vatsalya (Minors)
3. click on ‘Register Now’
4. Submit Guardian’s date of birth, PAN number, mobile number, and email address, then click on ‘Begin Registration’.
5. Submit the OTP received on mobile number and email address of the guardian.
6. After OTP verification, acknowledgment number will appear on the screen. select ‘Continue.’
7. Provide minor details as asked
8. Upload documents
9. Click confirm
10. Initiate the initial minimal deposit of Rs.1,000.
11. PRAN will be created (Permanent Retirement Account Number)
12. NPS Vatsalya Scheme is subscribed in name of minor applicant
13. After a day, the subscriber gets a Login ID to his account held by the CRA. Using this login ID, subscriber can view all details and history of his/her account.

PRAN (Permanent Retirement Account Number) which is unique, i.e., an individual can have only one PRAN number

NPS Vatsalya Partial Withdrawal

Before Turning 18

In case a child requires money before the age 18, the money can be withdrawn subject to the following conditions:

• After 3 years of joining NPS
• Up to 25% of contributed amount ( Please note: no interest can be withdrawn)
• Available 3 times till subscriber turns 18

Partial withdrawals can be made for education, treatment of specified illnesses, disability of more than 75%, etc., as defined by PFRDA

Complete Exit from NPS after 18 Years age

After turning major, if the child ( turned major now) want to exit NPS completely ( withdraw entire money and stop contributing), the following conditions has to be met:

If Accumulated Corpus is equal to or greater than 2.5 lakh

In case the accumulated amount is greater than 2.5 lakh then at least 80% of the balance is to be utilized for the purchase of an annuity and the remaining balance in a lump sum can be withdrawn.

If Accumulated Corpus is less than 2.5 lakh

If the accumulated amount is less than 2.5 lakh the subscriber can withdraw entire balance as a lump sum

Unfortunate event with subscriber or Guardian

• Death of the minor: entire accumulated Corpus returned to the guardian.
• Death of the guardian: another guardian is to be registered through fresh KYC. In case of death of both parents, the legally appointed guardian can continue the account with or without making contributions to the account.
• Upon attainment of 18 years of age, the subscriber has an option to continue or exit from the scheme.

Upon attainment of age of 18 years

• Seamless shift to NPS Tier – I (All Citizen)
• fresh KYC of the minor within three months from date of attainting 18 years.
• Upon transitioning, the features, benefits, and exit norms of the NPS-Tier I for All Citizen Model will apply

Investment Choice

NPS Vatsalya provide three investment choice to the subscriber. All three are mentioned below:

• Default Choice: Moderate Life Cycle Fund -LC-50(50% equity)
• Auto Choice: Guardian can choose Lifecycle Fund – Aggressive -LC-75(75% equity), Moderate LC-50 (50% equity) or Conservative-LC-25 (25% equity) as per his/her risk appetite.
• Active Choice: Guardian actively decides allocation of funds across Equity (upto 75%), Corporate Debt (upto 100%), Government Securities (upto 100%) and Alternate Assets (5%).

Pension Fund Selection: The guardian can choose any one of the Pension Fund Manager registered with PFRDA.

Points to Consider Before Investing

Positives ( Pros)

• The child will get an edge over retirement, as he can be pension-ready. Investing in NPS is far better than investing in other pension plans from insurance companies ( since these plans have high inbuilt charges that deeply impact the return).
• It can be a good scheme for affluent investors who have lots of spare money to invest for their bright future.
• But at least it is far better than investing in insurance plans for investment purposes.

Negatives ( Cons)

I have many points to bring to your notice before considering the NPS Child Scheme :

1. Parents’ Obligation/Duty towards Children – A parent must look after their kids, fund their education and help them achieve heights. But Planning for child’s pension looks weird. Leave so much that your children can do anything with it, but do not leave this much that they cannot do anything.
2. Plan your Retirement First – Before planning the pension of a child, it’s better to focus on your retirement first.
3. Plan Your children’s Education First– Please do not consider a NPS Vatsalya a substitute for child’s education funds, since you can withdraw only upto 25% of your deposited money ( without interest).
4. Limited Equity Exposure-Even if you wish to make them pension-ready, there is a limited exposure to equity which will in turn reduce the returns.
5. Compulsory Annuity – Whenever the child takes retirement, there is compulsory purchase of an annuity plan that provides a low interest rate on the pension fund itself. This amount may not be sufficient at that time.
6. Pension received will be taxed– The pension at the age 60, or whenever taken will be taxed as per slab rate.
7. Full Withdrawal – At no point in life you or your child can withdraw money fully and close the scheme. Once entered, it is always entered.( with limited exit & withdrawal rules).
8. No Control– You do not have any control over your investments. You can only choose your fund manager but not where you can invest.

Conclusion

NPS Vatsalya can be a good investment scheme for affluent people who wish to secure their child’s retirement. But practically speaking this children’s retirement scheme is not for middle-class people who struggle to fund their own retirement. NPS child scheme may also hold good for those who buy insurance policies for the benefit of kids’ retirement.