NPS Vatsalya: The Modi 3.0 regime’s flagship scheme, under which parents and guardians can invest for the financial future of their children, is an extension of the regular National Pension Scheme – a saving-cum-retirement scheme for all Indian citizens aged between 18 and 70.

Similar to NPS, NPS Vatsalya will also be managed by the Pension Fund Regulatory and Development Authority (PFRDA). This scheme, designed for children and minors, will give an option to parents to exit the scheme when their child turns 18. The condition is the minimum 80% of the maturity amount needs to be re-invested to buy an annuity plan and only 20% will be withdrawn as lump sum.

The NPS Vatsalya scheme can also come handy for parents at later stage as the maturity amount can serve as a stepping stone for higher education, starting a business, or other essential life milestones for their child.

Also read: NPS Vatsalya: Eligibility, benefits, withdrawal rules and other details

Minimum and maximum investment under NPS Vatsalya

NPS Vatsalya gives option to parents or guardians to invest as low as Rs 1,000 per year, and there’s no upper limit on how much they can invest. So parents will always have this flexibility to start with a lower amount and increase the amount along the way as their child grows up.

To be eligible for NPS Vatsalya, you must be a citizen of India, and your child should be under 18 years of age. It’s also essential that all parties involved comply with KYC (Know Your Customer) requirements.

If we talk about NPS Vatsalya’s key benefits, the scheme offers long-term financial security for your child and introduces the concept of pension planning early on. The saving scheme will also encourage and promote the habit of saving and investing among parents. It will also allow for adjustments based on changing family circumstances and goals.

NPS Vatsalya withdrawal:

Withdrawals from NPS Vatsalya can be made before your child turns 18, subject to certain conditions. After three years of enrollment, you can withdraw up to 25% of the total contributed amount, available three times until the child reaches adulthood. Withdrawals can be made for education, specified medical treatments, or disability over 75%, as per PFRDA guidelines.

Once the child turns 18, the account transitions to a regular NPS Account. Fresh KYC must be completed within three months. Subscribers can exit the NPS, but at least 80% of the corpus must be reinvested in an annuity plan, while 20% can be withdrawn as a lump sum. If the total corpus is under Rs 2.5 lakh, the entire amount can be withdrawn.

Also read: NPS Vatsalya can be beneficial for specially-abled children

NPS Vatsalya calculations:

Let’s explore how investing in NPS Vatsalya can help build a substantial corpus for your child by the time they turn 18.

Suppose a parent invests Rs 1,000 per month under the scheme.

Calculation Overview:

Investment Duration: 18 years

Annual Return: 12.86%

Financial Breakdown:

Total Amount Invested: Rs 2,16,000 (Rs 1,000/month x 12 months x 18 years)

Total Interest Earned: Rs 6,32,718

Total Corpus at Age 18: Rs 8,48,000

Historical Average Return: This rate of 12.86% reflects the historical average since the inception of NPS, with a portfolio allocation of 75% in equity and 25% in Government Securities (G-Sec) as of July 19, 2024.

Under the NPS Vatsalya norms, of the maturity amount, 80% (Rs 6,78,400) should me mandatorily reinvested in an annuity scheme, meaning only 20% (Rs 1,69,600) can be withdrawn as lump sum.

Here’s a breakdown of how a contribution of Rs 10,000 per year for 18 years can grow under different rates of return (RoR) (Source: SBI Pension Funds website)

At Age 18: With a RoR of 10%, the accumulated corpus would be approximately Rs 5 lakh.

At Age 60: If the same investment continues until retirement, the corpus could grow to Rs 2.75 crore at 10% RoR and Rs 5.97 crore at the historical average return of 11.59%, which reflects the default weights of 50% equity, 30% corporate debt, and 20% government securities as of July 19, 2024.

With 12.86% RoR, this Rs 10,000 annual contribution would grow to Rs 11.05 crore based on a portfolio allocation of 75% equity and 25% government securities.

Disclaimer: The above calculations are for illustrative purposes only. They are based on historical data and estimates; actual returns may vary.