New Delhi: The National Pension System (NPS) has introduced a new initiative called NPS Vatsalya, aimed at securing the financial future of children. Launched by Union Finance Minister Nirmala Sitharaman on September 18, 2024, this scheme was part of the July Budget announcement. NPS Vatsalya will be managed by the Pension Fund Regulatory and Development Authority (PFRDA).Understanding NPS VatsalyaNPS Vatsalya provides a structured way for parents and guardians to build a retirement fund for their children from a young age. As stated by Kurian Jose, CEO of Tata Pension Management, Through this route, parents/guardians can build a retirement corpus for their children from their childhood up to the age of 18. The account is opened in the name of the minor, with the guardian operating it. Importantly, the minor is the sole beneficiary of the account.Who is eligible for NPS VatsalyaAll minors, specifically individuals up to 18 years of age, are eligible to enroll in the NPS Vatsalya scheme. This inclusive approach ensures that every child can benefit from this initiative.Contribution details for NPS VatsalyaTo open a Vatsalya account, parents need to make an initial contribution of ₹1,000. Following this, an annual contribution of at least ₹1,000 is required to keep the account active. This low entry barrier makes it accessible for many families looking to secure their childrens future.How to open an NPS Vatsalya account Parents can open an NPS Vatsalya account at registered points of presence, which include banks, post offices, and pension fund offices. The process can be done either online or in person. The NPS Trusts eNPS platform also allows for a seamless account opening experience. Notably, banks like ICICI Bank and Axis Bank have partnered with the PFRDA to support this initiative, making it easier for parents to enroll their children.Transitioning at age 18Once the child turns 18, the NPS Vatsalya account will automatically transition to a regular NPS Tier I account. This shift enables the young adult to access all features of the NPS Tier I (All Citizen) plan, including Auto Choice and Active Choice options. This smooth transition promotes continued investment and savings as the individual steps into adulthood. Kurian Jose highlights the importance of this initiative, stating that it instills disciplined saving and compounding benefits and nurtures financial responsibility from an early age.Expected returns on NPSAccording to Nirmala Sitharaman, NPS has historically delivered impressive returns, yielding 14% in equity, 9.1% in corporate debt, and 8.8% in government securities. These returns are encouraging for parents looking to invest in their childrens future.Utilizing the NPS Vatsalya calculatorFor example, if parents contribute ₹10,000 annually for 18 years, and the investment achieves an expected rate of return (RoR) of 10%, the corpus could grow to around ₹5 lakh by the end of this period. If the investment continues until the investor reaches 60, the expected corpus can vary significantly based on different rates of return. With a 10% RoR, the corpus might reach approximately ₹2.75 crore.Should returns improve to an average of 11.59%—reflecting a typical NPS allocation of 50% equity, 30% corporate debt, and 20% government securities—the expected amount could rise to about ₹5.97 crore. Furthermore, with a higher average return of 12.86% (from a portfolio allocation of 75% equity and 25% government securities), the corpus could reach an impressive ₹11.05 crore. Its crucial to remember that these figures are illustrative, based on historical data, and actual returns may vary.
