New Delhi, May 10: If you are looking to secure your child’s financial future, the central government’s ‘NPS Vatsalya Scheme’ could be an excellent option. This scheme is a special pension plan designed for children, allowing parents or guardians to invest in the names of their minor children. It not only helps in building a substantial fund over the long term but also offers tax savings.
Launched in September 2024 under the National Pension System (NPS), the NPS Vatsalya Scheme aims to provide economic security for children’s futures. The scheme is managed by the Pension Fund Regulatory and Development Authority (PFRDA), with expected returns ranging from approximately 9.5% to 10%.
Parents or guardians can open an account in the name of their child, who must be under 18 years of age. The child can be an Indian citizen, an NRI, or an OCI. Until the child reaches adulthood, the account is managed by the parents or guardians.
A minimum annual investment of ₹1,000 is required for this scheme, with no upper limit on the investment amount, allowing parents to invest according to their financial capabilities.
One significant advantage of this scheme is the tax savings it offers. Under Section 80CCD(1B) of the Income Tax Act, parents or guardians can benefit from tax deductions on investments up to ₹1.5 lakh, along with an additional deduction of ₹50,000.
To open an account, valid documents such as the child’s birth certificate, school leaving certificate, passport, or PAN card are required. Initially, a bank account for the child is not mandatory, but it will be necessary for partial withdrawals or exits before the age of 18.
The NPS Vatsalya Scheme offers three investment options. The first is the ‘Default Choice,’ where 50% of the investment is made in equities. The second is ‘Auto Choice,’ allowing investors to select aggressive, moderate, or safe fund options. The third is ‘Active Choice,’ where parents can decide how much to invest in equities, government bonds, corporate debt, or other assets, with a maximum of 75% in equities.
In certain circumstances, partial withdrawals are allowed after three years of account opening, enabling parents to withdraw up to 25% of the deposited amount, which can be utilized for the child’s education, treatment of serious illnesses, or needs arising from disabilities over 75%.
When the child turns 18, they have two options: to close the account and withdraw the amount or to convert it into a regular NPS account, completing the KYC process within three months of turning 18.
In the unfortunate event of the child’s death, the entire amount is transferred to the nominee. If a parent passes away, the other guardian can continue the scheme by completing a new KYC process. If both parents die, the legal guardian can maintain the account until the child reaches adulthood.
Experts believe that starting investments at a young age allows for the benefits of compounding, leading to a substantial fund over time. Thus, the NPS Vatsalya Scheme can be a robust financial security option for children’s higher education, careers, and future economic needs.
Bhupendra Singh Chundawat is a seasoned technology journalist with over 22 years of experience in the media industry. He specializes in covering the global technology landscape, with a deep focus on manufacturing trends and the geopolitical impact on tech companies. Currently serving as the Editor at Udaipur Kiran, his insights are shaped by decades of hands-on reporting and editorial leadership in the fast-evolving world of technology.
