Finance Minister Nirmala Sitharaman officially launched the NPS Vatsalya scheme on Wednesday, aimed at helping parents secure their children’s future through pension investments.
This scheme allows parents to subscribe online or at banks and post offices, with a minimum initial contribution of ā¹1,000 and an annual renewal of the same amount.
Launched as part of the FY25 Budget, NPS Vatsalya has already seen participation from lenders like ICICI Bank and Axis Bank, with ICICI inaugurating the scheme in Mumbai. The government, through Financial Services Secretary Nagaraju Maddirala, has promised to refine the scheme based on subscriber feedback as it is rolled out.
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In the past decade, the NPS has attracted 1.86 crore subscribers, managing assets worth ā¹13 lakh crore, with impressive returns of 14% in equity, 9.1% in corporate debt, and 8.8% in government securities.
The āVatsalyaā scheme is available for children under the age of 18, with accounts opened and managed by parents or guardians. Once the child reaches 18 years, the account will convert into a regular NPS account.
A minimum annual contribution of ā¹1,000 is required, with no maximum cap on contributions.Ā
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Parents can choose from NPS fund managers and select either active or auto choice for investments. Equity exposure is capped at 75%, ensuring a balance between risk and potential returns Once the child reaches the age of 60, they will be able to withdraw pension benefits, providing long-term financial security.Ā
The scheme harnesses the power of compounding over time, allowing even small contributions to grow into a significant corpus by the time the child turns 18.
NPS has consistently generated strong returns since its inception. For the voluntary, non-government sector, equity funds have provided 14% CAGR, corporate debt at 9.1%, and government securities at 8.8%. Like regular NPS, the Vatsalya scheme benefits from one of the lowest cost structures in the market, making it a cost-effective long-term savings option for parents.Ā
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PFRDA Chairman Deepak Mohanty emphasized that the scheme is designed to inculcate early savings habits and long-term financial planning for children. By starting early, parents can leverage the benefits of compounding, ensuring financial security for their children into adulthood.Ā
Sitharaman highlighted the schemeās long-term potential, suggesting that NPS Vatsalya could be a thoughtful gift for children. “Money invested in NPS Vatsalya can be a lifelong contribution to the childās future,” she remarked.
One limitation of the NPS Vatsalya scheme is the restrictive withdrawal rules. Parents may face challenges if they need to access the funds early to cover education costs or other significant expenses.
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Partial withdrawals may only be allowed for specific reasons such as education, medical treatment, or home purchase, and only up to 25% of their contribution before the age of 60.
While the scheme offers several advantages, there is still no clarity on whether NPS Vatsalya will provide additional tax benefits beyond those available under regular NPS accounts. The PFRDA and finance ministry are expected to provide further details on this aspect.
NPS Vatsalya is a promising tool for parents to secure their childrenās financial future. It promotes early savings and long-term investment strategies, ensuring a stable income for children once they reach retirement age.
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