In a landmark initiative to foster a culture of savings and secure the financial future of children, the Government of India introduced the NPS Vatsalya Pension Scheme as part of the Union Budget 2024-25. This scheme, named National Pension System Vatsalya (NPS Vatsalya), is a saving-cum-pension plan designed exclusively for minors. It aims to help parents and guardians build a robust financial safety net for their children from an early age.
Administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA), the scheme offers flexible contribution options and multiple investment choices, ensuring that children’s financial futures are not only secure but also set to grow. Below is a detailed breakdown of the scheme and how it works.
Key Highlights of NPS Vatsalya Scheme
| Feature | Details |
| Scheme Type | Contributory pension scheme regulated and administered by the PFRDA. |
| Eligibility | All minor citizens of India up to the age of 18 years are eligible. |
| Account Operation | The account is opened in the minor’s name and operated by the guardian. The minor is the sole beneficiary. |
| Minimum Contribution | ₹1,000 per annum. |
| Maximum Contribution | No limit. |
| Pension Fund Selection | The guardian can choose from any of the PFRDA-registered Pension Funds. |
| Where to Open Account | POPs (Points of Presence) registered with PFRDA, including banks, post offices, and via eNPS online. |
| Documents Required | Minor’s birth certificate, KYC documents of the guardian, and, if applicable, bank details. |
Scheme’s Features
1. Eligibility Criteria
The NPS Vatsalya is open to all minor citizens of India, i.e., individuals below the age of 18. The account must be opened and operated by a legal guardian or parent until the minor reaches his adulthood.
2. Contributions
- Minimum Contribution: ₹1,000 per year. This ensures that the scheme is accessible to a wide range of people.
- Maximum Contribution: There is no upper limit to how much a guardian can contribute, providing flexibility based on financial capability.
3. Pension Fund Selection
Guardians can select from a list of Pension Funds registered with PFRDA, allowing for customization based on their risk tolerance and investment preferences.
4. Investment Choices
The scheme allows three types of investment choices, giving flexibility in how contributions are invested:
| Investment Choice Type | Details |
| Default Choice | Moderate Life Cycle Fund (LC-50): 50% equity. |
| Auto Choice (Options) | Guardians can also choose as per risk appetite: Aggressive Life Cycle Fund (LC-75) with 75% equity, Moderate LC-50 (50% equity), or Conservative Life Cycle Fund (LC-25) with 25% equity. |
| Active Choice | Guardians can actively decide fund allocation, with equity exposure up to 75%, corporate debt up to 100%, government securities up to 100%, and alternative assets up to 5%. |
Account Operation
The NPS Vatsalya account is operated by the guardian until the minor reaches the age of 18. The following key details outline the account’s operation:
- Account Issuance: A Permanent Retirement Account Number (PRAN) is issued in the name of the minor.
- Minor as Beneficiary: The minor is the sole beneficiary of the account, meaning all contributions and returns will benefit them directly.
- Guardian Role: The guardian manages the account, making contributions and selecting investment options.
Contribution Withdrawal & Maturity Rules
Upon Attainment of 18 Years
Once the minor reaches the age of 18, the account is either transferred to a regular NPS Tier I account (All Citizens Model) or closed based on the corpus size:
| Condition | Rule |
| Accumulated Corpus < ₹2.5 lakh | Entire balance can be withdrawn as a lump sum. |
| Accumulated Corpus ≥ ₹2.5 lakh | At least 80% of the balance must be utilized to purchase an annuity, with the remaining balance withdrawn as a lump sum. |
Alternatively, the account can be continued under a regular NPS scheme after the minor turns 18. A fresh KYC is required within 3 months. And the features, benefits, and exit norms of the NPS-Tier I for All Citizens Model will apply.
Partial Withdrawals
When allowed: After a lock-in period of 3 years, partial withdrawals of up to 25% of the contributions are allowed for specific purposes such as:
- Education
- Medical treatment of specified illnesses
- Disability
These withdrawals can be made up to a maximum of three times before the minor reaches 18 years.
Exit & Withdrawal Upon Death
In case of the minor’s death: The entire accumulated corpus is returned to the guardian.
In case of Guardian’s Death: A new guardian can be appointed, and the account continues. In case of the death of both parents, a legally appointed guardian can manage the account with or without contributions. Upon reaching 18, the minor can either continue with the scheme or exit.
Benefits of NPS Vatsalya
1. Secures the Child’s Future: Provides a robust financial foundation for minors, ensuring they have a reliable source of pension in the future.
2. Flexible Investment Options: The scheme allows guardians to choose how contributions are invested, balancing between equity and debt based on their risk appetite.
3. Early Savings Culture: Encourages a culture of savings at an early age, setting the foundation for financial discipline.
4. Low Entry Barriers: With a minimum contribution of ₹1,000, the scheme is accessible to a wide range of families, irrespective of income.
5. Seamless Transition: Upon reaching the age of 18, the account seamlessly transitions into an NPS Tier-I account, ensuring continuity in investment growth.
Documents Required to Open an NPS Vatsalya Account
| Document Type | Required Documents |
| Proof of Birth | Birth Certificate, School Leaving Certificate, Matriculation Certificate, PAN, or Passport of the minor. |
| Guardian’s KYC | Guardian’s Proof of Identity and Address: Aadhaar, Driving License, Passport, Voter ID card, NREGA Job Card, or National Population Register details. |
| Bank Account | NRE / NRO Bank Account details if the guardian is an NRI (can be a solo or joint account of the minor). |
Summing up
The NPS Vatsalya Scheme is a game-changing initiative in India’s financial landscape, aiming to ensure that the country’s youngest citizens have a secure financial future. With its flexible contribution model, multiple investment choices, and seamless transition to the NPS All Citizens Model upon maturity, the scheme is an excellent tool for parents and guardians to build long-term financial security for their children. Moreover, its accessibility and low entry barriers make it a viable option for families from diverse economic backgrounds.
