The Centre last month launched a contributory investment-cum-pension plan NPS Vatsalya for children, with an aim to broaden the social security net in the society. Earlier, only those in the age group of 18-70 had an option to subscribe to the NPS (National Pension System), but the NPS Vatsalya plan has been launched to secure the future of minors also. Finance Minister Nirmala Sitharaman announced the launch of NPS Vatsalya during the 2024 Budget.

This contributory pension scheme, regulated by the Pension Fund Regulatory and Development Authority (PFRDA), allows parents or guardians to open an NPS account for their minor children. One can open an NPS Vatsalya account with a minimum annual contribution of Rs 1,000.

NPS Vatsalya offers several key features designed to benefit both the child and the guardian. The minor is the sole beneficiary of the account, and parents or guardians can make contributions on their behalf. Once the child turns 18, the account can seamlessly transition into a regular NPS Tier 1 account, allowing for continued growth and investment.

Kurian Jose, CEO, Tata Pension Management, explains various standout features of NPS Vatsalya and what makes it unique among saving products available for children.

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“Earlier, NPS allowed investments towards retirement from 18 years to 70 years and one could remain invested till the age of 75. With NPS Vatsalya, one can technically stay invested from birth to the age of 75. This helps even a small monthly / periodic contribution to become a meaningful retirement corpus through the power of compounding by investing in the capital market,” Jose said. Here’s what makes it stand out as a unique investment opportunity for children:

Long-Term Wealth Creation

Since NPS Vatsalya allows investments to be made from a young age, it benefits from the power of compounding over a longer period. This long-term horizon allows the investment to grow significantly by the time the child reaches retirement age or an age where they might need the funds for future needs.

Flexible Investment Structure

The scheme offers flexibility in terms of contributions. Parents or guardians can invest in small amounts regularly or make larger contributions depending on their financial capability. This makes it accessible for a wide range of investors.

Diversified Investment Portfolio

NPS Vatsalya offers a diversified portfolio that includes equity, government securities, corporate bonds and alternate investments, managed by professional fund managers. This diversified approach helps manage risks better compared to a single asset class investment. One can also choose investing through active choice or auto choice thus giving options for all types of NPS subscribers with different risk taking abilities. This asset allocation can also be periodically adjusted 4 times a year without a tax incidence.

Regulated by PFRDA

As a government-regulated scheme under the Pension Fund Regulatory and Development Authority (PFRDA), NPS Vatsalya provides a transparent investment environment.

Also read: NPS Vs Mutual Funds Vs PPF Vs EPF: NPS returns comparable to large-cap mutual funds!

Low Cost and Fees

NPS has one of the lowest fund management fees compared to other retirement or investment products. This feature enhances the net returns over the long term, particularly significant for a child-centric investment that benefits from long-term growth.

Goal-Oriented Savings

NPS Vatsalya is an ideal tool for parents who want to ensure their children have a secure financial future.

NPS Vatsalya’s unique combination of long-term investment, diversified portfolio, tax benefits, and flexibility makes it an excellent vehicle for securing a child’s financial future.