What Is NPS Vatsalya Scheme Work And How Does It Work?

What Is NPS Vatsalya?

The Government of India offers a wide range of schemes for different groups of people – salaried individuals, senior citizens, and even children. The Pradhan Mantri Vatsalya Yojana, or NPS Vatsalya, is one such scheme designed for minors. Regulated by the Pension Fund Regulatory and Development Authority (PFRDA), it is a contributory pension scheme for individuals below the age of 18. The guardian manages the account, and once the child attains majority, it is converted into a regular NPS Tier 1 account in their name.

NPS contributions are invested in a mix of equity, government securities, corporate debt, and alternative assets with the aim of achieving long-term growth through the power of compounding. 

NPS Vatsalya helps parents build a strong corpus for their child’s future with early and consistent investments. This habit also instils financial discipline and improves the financial life of parents while securing the child’s future.

Purpose And Benefits

Here are some key reasons why the NPS Vatsalya scheme stands out:  

1. Early Financial Security And Retirement Cushion

If you start investing for your child from a young age, you can build a sizeable corpus by the time they are an adult. This corpus can be used for their education, career goals, marriage, or even serve as a foundation for their golden years. With consistent contributions and compounding, you can secure their retirement before they start earning. 

2. Savings Discipline And Financial Literacy

Introducing your child to financial planning at a young age helps them understand the value of money and the importance of saving. Even though you manage the account, your child develops a sense of ownership and responsibility. Once they turn 18, they will have a good head start by inheriting the habit of saving and a well-built corpus. This will further motivate them to continue responsible financial behaviour. Early exposure creates sustained financial discipline.  

3. Flexible Contributions

The minimum contribution to the NPS Vatsalya scheme is ₹1,000 per financial year, making it accessible to a wide range of people. Moreover, unlike some investments, there is no upper limit, allowing individuals to build a solid corpus over time. 

4. Safety and Transparency

The scheme is regulated by PFRDA and overseen by the Government of India – making it a secure investment. You can expect professional fund management, transparent operations, and proper governance.  

Who Can Subscribe – Eligibility

NPS Vatsalya is available to all resident minors in India who are below the age of 18. The account must be opened by a parent or legal guardian, who can be a Non-Resident Indian (NRI) or an Overseas Citizen of India (OCI). They are responsible for making timely investment decisions and contributions. 

Although the account is guardian-operated, the minor remains the sole beneficiary; the investment and corpus belong entirely to the child. Once the child turns 18, they must complete fresh Know Your Customer (KYC) formalities within three months, after which the account automatically converts into the standard NPS Tier I account in their name.

Investment Amount And Fund Options 

1. Contributions

One of the most attractive features of the NPS Vatsalya scheme is its affordability and flexibility. The low entry amount of ₹1,000 per financial year makes it accessible to families across income groups. With no upper limit on contributions, it also serves as a powerful tool for securing the child’s future, especially for high-income parents looking to build a substantial corpus. Thus, the scheme caters to both ends of the income spectrum. 

2. Fund choices

NPS Vatsalya allows you to choose how your contributions are invested. Broadly, these are the options: 

• Default choice: The Moderate Life Cycle (LC) Fund or LC-50 allocates 50% of the investment to equity. 
• Auto Choice: This option adjusts the equity allocation based on the child’s age. There are three sub-options: 
• Aggressive LC Fund (LC-75): This fund starts with a 75% equity allocation and gradually decreases exposure with increasing age. It is ideal if you are comfortable with assuming high risks for high returns. 
• Moderate LC Fund (LC-50): This fund starts with a 50% equity allocation, offering a balance between capital protection and appreciation. 
• Conservative LC Fund (LC-25): This fund starts with a 25% equity allocation, making it ideal for risk-averse parents. 
• Active Choice: While the auto choice is a hands-off approach, this option is a hands-on approach. It allows parents to actively manage the portfolio manually, with certain defined limits:  
• Equity allocation: up to 75%
• Corporate debt: up to 100%
• Government securities: up to 100%
• Alternate assets: maximum 5% 

3. Fund manager and CRA selection: You have the flexibility to choose your account’s fund manager and Central Recordkeeping Agency (CRA) from the approved entities. 

How To Open An NPS Vatsalya Account?

There are two ways to open the account: 

Online

Step 1: Visit the eNPS website, click on ‘Apply Online’ and select your CRA.

Step 2: Fill in the guardian and minor’s details. 

Step 3: Complete KYC formalities using either the Permanent Account Number-based or Aadhaar-based mode. 

Step 4: Make the initial contribution of a minimum ₹1,000. 

Step 5: Receive your Permanent Retirement Account Number (PRAN) – a system-generated unique identifier for future account management. 

Offline

Step 1: Visit the nearest Points of Presence-Service Providers (POP-SP), such as banks, India Post, or designated pension fund offices.  

Step 2: Submit the application form along with KYC documents. 

Step 3: Make the initial contribution.

Step 4: Receive your PRAN. 

Documents Required

Here’s the list of documents you will need to open the account: 

Guardian’s KYC documents (any one of each):

• Proof of identity: Aadhaar, PAN, passport, voter ID
• Proof of address: Aadhaar, passport, utility bill, bank statement

Minor’s proof of date of birth (any one):

• Birth Certificate
• Passport
• Aadhaar (if available)
• School ID with date of birth 

Withdrawal Rules

Partial Withdrawal

Guardians can withdraw up to 25% of the contributions for specific purposes such as the minor’s higher education, serious illness, physical disability, or rehabilitation needs. Withdrawals are permitted only after three years of account opening and can be made a maximum of three times until the child turns 18. 

Exit at 18: Once the child turns 18, NPS Vatsalya matures. The child has two options: 

• If the accumulated corpus is ₹2.5 lakh or less:  The entire amount can be withdrawn as a lump sum. 
• If the accumulated corpus exceeds ₹2.5 lakh: Up to 20% of the corpus can be withdrawn as a lump sum. The remaining 80% must be used to purchase an annuity, which will provide a regular pension once the account holder reaches the eligible retirement age.

Death Provisions

If the child unfortunately dies before turning 18, the entire corpus will be returned to the guardian. If the guardian passes away, another guardian can be registered by submitting the required KYC documents.  

Channel Partners and Availability

NPS Vatsalya can be opened through:

1. POPs registered with PFRDA: This includes major public and private sector banks, India Post offices, pension fund offices, and other authorised financial institutions. You can either visit any POP in person or use their website or apps to open the account.  
2. eNPS Portal: This is the official NPS website that offers an entirely digital account opening experience. This is also the quickest option. 

Conclusion

NPS Vatsalya is more than just a savings scheme. It not only secures your child’s future but also shapes their financial habits from a young age. With government backing, flexible contributions, and transparent regulation, it is well-suited for ideal long-term goals such as your child’s education or even retirement planning. 

Open an NPS Vatsalya account today through the eNPS portal or your bank to start your child’s journey toward financial independence.

Additional Read: 5 Investment Options in India for Retirement Planning