In today’s blog, we will explore the NPS Vatsalya Scheme in detail. This scheme has been designed to help parents secure the future of their children by investing money for their long-term financial needs. We’ll examine its features, eligibility criteria, and how you can invest in it.

Introduction to NPS Vatsalya Scheme

The NPS Vatsalya Scheme is a contributory scheme, similar to the National Pension System (NPS). It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), which also regulates the NPS. This scheme is targeted at securing the financial future of the younger generation.

Eligibility Criteria

The scheme is available for children from newborns up to 18 years of age. It requires a PAN card for the child. The aim is to give parents an option to start early savings for their children’s future.

Contribution Details

• Minimum Contribution: You can invest as little as ₹1 annually, which is less than ₹1 per month.
• Maximum Contribution: There is no upper limit on how much you can invest.
• Who Can Contribute? Both parents and guardians can contribute. The contributions can be made by the registered guardian or parent, depending on who was listed when the account was opened.

Documents Required for Account Opening

To open an account for your child, you will need:

1. Proof of Birth: This can be a birth certificate, school leaving certificate, or matriculation certificate.
2. Guardian KYC: KYC for the guardian is mandatory and can be done using proof of identity and address, including documents like Aadhaar, Driving License, Passport, Voter ID, or NREGA Job Card.
3. Bank Account: If the guardian is an NRI, they will need to provide an NRO/NRE bank account.

Exit and Withdrawal Rules

If you need to withdraw funds before the child turns 18, you can withdraw up to 25% of the contributions for specific conditions, such as:

• Education
• Specified illness
• Disability

This withdrawal can be made a maximum of three times before the child turns 18.

Post-18 Options: Full Withdrawal and Annuity Purchase

• Full Withdrawal: If the total amount accumulated is below ₹2.5 lakh, you can withdraw it as a lump sum.
• Annuity Purchase: For amounts exceeding ₹2.5 lakh, a mandatory annuity purchase is required, meaning you will only get 20% of the corpus in hand, while the rest will be used for future pension. This might not be ideal for situations like higher education or marriage, where parents would prefer access to the full amount.

Death of Guardian or Child

• If the child passes away, the accumulated amount will be transferred to the legal heirs.
• If the guardian passes away, the other parent can take over the account after completing fresh KYC. In the case of both parents’ demise, a legally appointed guardian can continue the contributions or withdraw funds.

Investment Options

The scheme offers various investment options:

1. Moderate Life Cycle Fund: A default option where 50% of the investments go into equities and 50% into government or corporate bonds.
2. Auto Choice: Three types of life cycle funds (Aggressive, Moderate, Conservative), with varying levels of equity exposure.
3. Active Choice: Gives investors full control over where their money is invested. Parents can opt for higher equity exposure, which can go up to 75%.

Tax Benefits

One major drawback of this scheme is the lack of tax benefits. You don’t receive any tax deductions either at the time of investment or withdrawal, making it less appealing compared to other tax-saving schemes.

Also Read : 15 Exempt or Tax free incomes for salaried employees

How to Open an Account

You can open an NPS Vatsalya account either online or offline:

• For online onboarding, visit the PFRDA or NPS websites. The process is seamless, and you’ll need to provide basic details like your child’s date of birth, PAN card, and your contact details. An OTP verification is required, and you’ll receive an acknowledgment once the account is created.
• For offline onboarding, visit a Point of Presence (POP), where you can fill in the necessary forms.

My Opinion

While the NPS Vatsalya Scheme aims to encourage parents to think about their children’s future early, I believe there are two major drawbacks:

1. Lack of flexibility: The scheme doesn’t allow full access to the funds for critical life stages like education and marriage, which are often the primary financial goals for parents.
2. No tax benefits: There are no tax deductions at the time of investment or withdrawal, which could discourage long-term investors.

Given these factors, mutual funds or other investment options might be better suited for those looking for tax savings and more control over their money. The NPS Vatsalya Scheme could be beneficial for corporate investors or those who do not mind the lack of tax benefits.

If you dont have Demat Account for mutual fund investments, you can open it online from here.

Conclusion

The NPS Vatsalya Scheme, while a noble thought, may not be the best option for everyone due to its lack of flexibility and tax benefits. If you are still interested in securing your child’s future, you can explore other investment avenues alongside the scheme. Remember, every penny matters!

If you found this information useful, don’t forget to like, share, and subscribe to our newsletter. Stay tuned for more news like this, and keep investing wisely!