Budget 2024 introduced the NPS Vatsalya Scheme, an investment scheme for minors. Under the NPS Children scheme, the Parents can contribute to their children’s future pension and make them pension ready. Let’s understand the NPS Vatsalya and how it works. What are the Benefits of the NPS Vatsalya Scheme? Should you invest in the NPS Vatsala Children scheme?
Although, the rules are not specified. But still, let’s understand it with the available information.
What is the NPS Vatsalya Scheme?
Finance Minister Nirmala Sitharaman has introduced NPS Vatsalya in Budget 2024. NPS Vatsalya allows parents to contribute on behalf of their children till they turn 18. This NPS scheme for minors promises a healthy future by planning their retirement fund.
Under Vatsalya yojana, Parents can start an NPS account for their children and pay on monthly/ yearly or other modes.
When the child turns major (18 years), the NPS Vatsalya scheme will transform into a standard NPS account.
From age 18 the child can manage it himself/herself. Parents and guardians, regardless of their citizenship status, can open an NPS Vatsalya account for their underage children.
How does NPS Vatsalya work?
Let’s understand it using the example of Bestii Singh.
Suppose Bestii Singh, opens NPS Vatsalya for his minor child Anuj, aged 1 year. He starts contributing Rs 5000 per month till he turns major.
Anuj can operate NPS Vatsalya himself from 18. But earning usually starts from age 23-25 only ( assumed). Again Mr. Bestii will have to contribute for another 5-6 years.
As soon as Anuj Starts earning, he may contribute to the scheme.
As per current NPS rules, he is eligible to continue contributing to NPS until retirement, or he may make a premature withdrawal and receive a pension with 80% of the money.
He also has the option to withdraw money partially or else contribute NPS till retirement.
Let’s further evaluate this.
Suppose the NPS Vatsalya scheme generates a 10% return yearly. NPS account has been contributed for 59 years ( 5000 monthly contributions). The corpus will be around 17.44 Crore.
As per current NPS rules, Anuj can withdraw 60% lumpsum and from 40% money pension will start.
NPS Vatsalya Scheme – Should you invest?
NPS Vatsalya scheme is a very long-term perspective from an investment point of view. As per my understanding, it is an additional burden on the parents’ shoulders it’s as a parent.
We must support the child for his education and other needs. But Planning a child’s retirement looks daunting.
Even if you are willing to pass good wealth for child’s future, it is best to contribute to other investment schemes such as Index funds, Aggressive mutual funds, and Moderate return mutual funds. It is best if you insure yourself well, so that his future can be taken care of, rather than invest and lock the money for future use.
NPS Vatsalya will be like having low liquidity on your part. It is best to invest under the guidance of a Financial Consultant.
( The post will be updated after Govt. adds more information for NPS Vatsalya)
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