NPS Vatsalya: Nirmala Sitharaman Launches A New Pension Scheme for Minors

Union Finance Minister Nirmala Sitharaman has unveiled the NPS Vatsalya scheme, a new initiative aimed at providing pension accounts for minors. This scheme, managed by the Pension Fund Regulatory and Development Authority (PFRDA), introduces an online platform to facilitate subscriptions and make the process more accessible.

Key Features of NPS Vatsalya

The NPS Vatsalya scheme is designed to help parents build long-term financial security for their children from a young age. Parents or guardians can open a pension account for minors and contribute as little as Rs 1,000 annually. This flexibility allows families from various economic backgrounds to invest in their children’s future.

The scheme enables the power of compounding to work over time, building significant wealth for the child. During the launch event, Minister Sitharaman issued Permanent Retirement Account Number (PRAN) cards to newly registered minors, symbolizing their entry into the scheme.

Withdrawal, Exit, and Death Rules

According to the Central Bank of India’s website, the NPS Vatsalya scheme includes specific rules for withdrawals, exits, and handling of accounts in case of death:

• Withdrawal: After a lock-in period of three years, withdrawals of up to 25% are permitted for purposes such as education, illness, or disability. This can be done up to three times.
• Exit: When the minor turns 18, the NPS Vatsalya account transitions to an NPS Tier-I account under the ‘All Citizen’ category. If the total corpus exceeds Rs 2.5 lakh, 80% must be used to purchase an annuity, with the remaining 20% available for lump sum withdrawal. If the corpus is Rs 2.5 lakh or less, the entire amount can be withdrawn as a lump sum.
• Death of the Minor: In the unfortunate event of the minor’s death, the entire corpus will be returned to the guardian.

Eligibility and Account Operation

As highlighted on the Reserve Bank of India’s website, the NPS Vatsalya scheme is open to any minor citizen up to 18 years old. The account is operated in the name of the minor but managed by the guardian, with the minor being the sole beneficiary of the account.

How to Open an NPS Vatsalya Account

Parents or guardians can open an NPS Vatsalya account both offline and online. For offline applications, they can visit designated Points of Presence (POPs) such as major banks, India Post offices, and pension funds. The online process is available through e-NPS for added convenience.

Required Documents

To open an NPS Vatsalya account, the following documents are necessary:

• Proof of identity and address for the guardian.
• Date of birth proof for the minor.
• If the guardian is an NRI, an NRE/NRO bank account (solo or joint) in the minor’s name is required.

Investment Choices

The NPS Vatsalya scheme offers various investment options:

• Default Choice: Moderate Life Cycle Fund (LC-50), where 50% of investments are allocated to equities.
• Auto Choice: Includes different life cycle funds:
  • Aggressive LC-75 (75% equity)
  • Moderate LC-50 (50% equity)
  • Conservative LC-25 (25% equity)
• Active Choice: Guardians can choose how to allocate funds across categories:
  • Equity (up to 75%)
  • Corporate debt (up to 100%)
  • Government securities (up to 100%)
  • Alternate assets (up to 5%)

CAMS, a major service provider for NPS, has announced the launch with an SMS to investors, stating, “NPS Vatsalya Scheme for minors is being launched today. The scheme allows you to open an account for your child's secure future. This scheme, regulated by PFRDA, provides a range of investment choices and NPS benefits from a young age.”