The government of India recently launched a specialised National Pension System (NPS) scheme known as NPS Vatsalya. Aimed at minors between 0-18 years, this scheme opens doors to long-term financial planning right from childhood. In this article, we will explore the features of this new initiative and how an extended investment period can provide significant returns.
Who Can Open an NPS Vatsalya Account?
NPS Vatsalya can be initiated by parents or guardians on behalf of minors aged 0-18 years. The account will be opened in the child's name, and a Permanent Retirement Account Number (PRAN) will be assigned. This creates a unique opportunity for parents to ensure long-term financial security for their children.
Required Documentation
To open an NPS Vatsalya account, certain documents are essential. The minor’s birth certificate must be provided, along with the guardian's or parent’s KYC documents, which can include Aadhaar card, driving licence, passport, voter ID, or National Population Register card. PAN card details of the guardian or parent are also necessary to track transactions.
Minimum Investment Requirements
The account can be opened with an initial deposit of Rs 1,000, which also serves as the minimum annual contribution required to keep the account active. This low threshold makes it accessible to a broader range of families, encouraging them to start investing early for their child's future.
Where Can Accounts Be Opened?
NPS Vatsalya accounts can be opened both online and offline. Offline applications can be made at nationalised banks, PFRDA-accredited Points of Service (PoS), and post offices. The scheme is designed to be accessible to everyone, with the ease of account opening being a top priority.
Investment Choices Available
One of the standout features of the NPS Vatsalya scheme is the investment choice flexibility. There are two options available:
Auto Choice: By default, the NPS Vatsalya account is allocated to the Moderate Lifecycle Fund. In this case, the equity exposure is capped at 50%.
Active Choice: For those seeking more control, Active Choice allows investors to manage their portfolio, with an equity option of up to 75%. In this mode, investors can also allocate funds to corporate debt and government securities, offering a more tailored investment strategy.
Withdrawal Options
Withdrawals from the NPS Vatsalya account are limited before the age of 18. Upon reaching this age, the account holder can withdraw up to 20% of the corpus, with the remaining amount being used to purchase an annuity. If the total corpus is less than Rs 2.50 lakh, the entire amount can be withdrawn. These structured withdrawal rules ensure that the fund serves its purpose as a retirement tool while still offering some liquidity when needed.
What Happens at 18?
When the minor reaches the age of 18, their NPS Vatsalya account will convert into a regular NPS account, allowing for continued contributions. Contributions can be made until the account holder reaches 75 years of age, offering a long horizon for wealth creation.
How Extended Investment Periods Yield Higher Returns
The advantage of investing early is highlighted in a case where a child starts investing Rs 5,000 monthly at the age of 5. With a 13% annualised return over a period of 55 years, the corpus generated would be a substantial Rs 40.9 crore. The total invested amount during this period would be Rs 33 lakh.
In contrast, if a person starts investing at the age of 18 with the same monthly contribution, their expected corpus at 60 years of age would be Rs 8.3 crore. The invested amount in this case would be Rs 25.20 lakh. By starting early, investors stand to generate an additional Rs 32.6 crore with only Rs 7.80 lakh more in contributions, demonstrating the power of compounding over an extended investment period.
NPS Vatsalya offers a robust investment option for minors, providing flexibility in investment choices, low entry barriers, and long-term financial planning. The potential for generating a significantly higher retirement corpus through early investment makes it an attractive option for parents aiming to secure their children's future.
Who Can Open an NPS Vatsalya Account?
NPS Vatsalya can be initiated by parents or guardians on behalf of minors aged 0-18 years. The account will be opened in the child's name, and a Permanent Retirement Account Number (PRAN) will be assigned. This creates a unique opportunity for parents to ensure long-term financial security for their children.
Required Documentation
To open an NPS Vatsalya account, certain documents are essential. The minor’s birth certificate must be provided, along with the guardian's or parent’s KYC documents, which can include Aadhaar card, driving licence, passport, voter ID, or National Population Register card. PAN card details of the guardian or parent are also necessary to track transactions.
Minimum Investment Requirements
The account can be opened with an initial deposit of Rs 1,000, which also serves as the minimum annual contribution required to keep the account active. This low threshold makes it accessible to a broader range of families, encouraging them to start investing early for their child's future.
Where Can Accounts Be Opened?
NPS Vatsalya accounts can be opened both online and offline. Offline applications can be made at nationalised banks, PFRDA-accredited Points of Service (PoS), and post offices. The scheme is designed to be accessible to everyone, with the ease of account opening being a top priority.
Investment Choices Available
One of the standout features of the NPS Vatsalya scheme is the investment choice flexibility. There are two options available:
Auto Choice: By default, the NPS Vatsalya account is allocated to the Moderate Lifecycle Fund. In this case, the equity exposure is capped at 50%.
Active Choice: For those seeking more control, Active Choice allows investors to manage their portfolio, with an equity option of up to 75%. In this mode, investors can also allocate funds to corporate debt and government securities, offering a more tailored investment strategy.
Withdrawal Options
Withdrawals from the NPS Vatsalya account are limited before the age of 18. Upon reaching this age, the account holder can withdraw up to 20% of the corpus, with the remaining amount being used to purchase an annuity. If the total corpus is less than Rs 2.50 lakh, the entire amount can be withdrawn. These structured withdrawal rules ensure that the fund serves its purpose as a retirement tool while still offering some liquidity when needed.
What Happens at 18?
When the minor reaches the age of 18, their NPS Vatsalya account will convert into a regular NPS account, allowing for continued contributions. Contributions can be made until the account holder reaches 75 years of age, offering a long horizon for wealth creation.
How Extended Investment Periods Yield Higher Returns
The advantage of investing early is highlighted in a case where a child starts investing Rs 5,000 monthly at the age of 5. With a 13% annualised return over a period of 55 years, the corpus generated would be a substantial Rs 40.9 crore. The total invested amount during this period would be Rs 33 lakh.
In contrast, if a person starts investing at the age of 18 with the same monthly contribution, their expected corpus at 60 years of age would be Rs 8.3 crore. The invested amount in this case would be Rs 25.20 lakh. By starting early, investors stand to generate an additional Rs 32.6 crore with only Rs 7.80 lakh more in contributions, demonstrating the power of compounding over an extended investment period.
NPS Vatsalya offers a robust investment option for minors, providing flexibility in investment choices, low entry barriers, and long-term financial planning. The potential for generating a significantly higher retirement corpus through early investment makes it an attractive option for parents aiming to secure their children's future.
