Are you planning for your child's future? It is one of the smartest decision a parent can make. To help with this, the Government of India has introduced the NPS Vatsalya Scheme. It is part of the National Pension System designed to support the financial well-being of children of NPS subscribers in case of untimely demise.
What is the NPS Vatsalya Scheme?
The NPS Vatsalya Scheme is a pension plan for children under the National Pension System (NPS). It helps parents or guardians save money for a child's future by opening a special account in the child's name. The money grows over time through investments linked to the market.
This scheme shows the government's effort to teach kids about saving money and help them build wealth over the long term. It is not a plan for financial support if an NPS subscriber passes away but is meant to secure retirement savings for children.
NPS Vatsalya Benefits
The NPS Vatsalya Scheme is a government-supported pension plan aimed at securing the financial future of minors. Here are some of its key NPS Vatsalya benefits:
- Long-Term Financial Security parents can contribute to their child's retirement savings from an early age ensuring financial stability in adulthood.
- Tax Benefits contributions are eligible for tax deductions under Section 80CCD (1B) making it a tax-efficient investment.
- The minimum yearly contribution is INR 1,000, with no maximum cap, allowing parents to invest based on their financial ability.
- Market-Linked Growth funds are invested in market-based options like equity and debt offering potential for higher returns compared to traditional savings.
- Partial Withdrawals up to 25% of the contributed amount can be withdrawn for emergencies.
- Account Transition when the child turns 18 the account converts into a standard NPS Tier-1 account allowing them to continue saving independently.
NPS Vatsalya Interest Rate
The NPS Vatsalya Scheme offers competitive returns based on market-linked investments. The NPS Vatsalya interest rate fluctuates depending on the asset allocation chosen. Here's an overview.
- Equity investments have historically delivered returns of around 14% in NPS equity funds.
- Corporate debt investments have averaged returns of about 9.1%.
- Government securities have yielded approximately 8.8%.
- Overall, if parents contribute INR 10,000 annually for 18 years, the corpus could grow to around ?5 lakhs, assuming a 10% return.
The actual returns depend on market performance and the chosen investment mix.
NPS Vatsalya Tax Benefits
The NPS Vatsalya Scheme offers tax benefits similar to the regular pension system. Here's how NPS Vatsalya tax benefits you:
- You can claim an additional INR 50,000 deduction for contributions made to an NPS Vatsalya account, over and above the INR 1.5 lakh limit under Section 80C.
- Your investment grows tax-free until withdrawal, helping you secure your child's financial future.
- You can withdraw up to 25% of your contributions partially without any tax implications.
- When you leave the scheme, you can take out 20% of the total amount as a one-time payment. The remaining 80% can be used to buy an annuity plan.
This scheme is a great way to build a retirement corpus for minors while enjoying tax benefits.
NPS Vatsalya Eligibility
To become eligible for NPS Vatsalya Scheme, here are the key criteria:
- The scheme is meant for minors below 18 years of age.
- Indian citizens, NRIs, and OCI minors are eligible to apply.
- A parent or legal guardian must manage the account until the minor turns 18.
- The guardian must complete KYC, with fresh KYC required when the child turns 18.
- A minimum yearly contribution of INR 1,000 is required, with no upper limit.
Once the minor reaches 18 years, based on NPS Vatsalya eligibility, the account transitions into a regular NPS Tier-1 account, allowing them to continue building their retirement corpus.
Documents Needed to Open an NPS Vatsalya Account
To open NPS Vatsalya account, you are required the following documents:
- KYC of the guardian, such as Aadhaar card, passport, driving license, NREGA job card, voter ID card or National Population Register documents
- PAN of the guardian
- Date of birth proof of the minor, such as matriculation certificate, PAN, birth certificate, school leaving certificate or passport
- Signature of the guardian
- Scanned copy of passport, in case of NRI subscribers
- Scanned copy of foreign address proof, in case of OCI subscribers
- NRE/ NRO bank account of the minor, in case of NRI or OCI subscribers.
This scheme is designed to help parents secure their children's financial future by contributing to their retirement savings from an early age.
How to Apply for NPS Vatsalya Scheme
You can apply for the NPS Vatsalya Scheme online through the Alnakit NPS platform, which is the quickest way to open an account. Here's how to apply NPS Vatsalya:
Step 1: Go to the Alnakit NPS link to begin your registration. Click here
Step 2: Find the NPS Vatsalya (Minors) section by scrolling down and tap/click on 'Registration' button.
Step 3: Provide the required details and then verify your details (KYC) the same.
Step 4: Now, Mention INR 1,000 as initial contribution.
Step 5: Verify your identity using either dual OTP or eSign.
A PRAN will be generated. The NPS Vatsalya account in the minor's name will be set up.
Once the account is set up, the guardian will manage it until the minor turns 18 years old, after which it will be transferred to the child's name.
NPS Vatsalya is more than just a pension continuation - it's a promise to safeguard your loved ones. Let Alankit help you make that promise count with easy account setup and ongoing support.
Enroll today and invest in your child's future - because every secure tomorrow starts with a step today.