Union Finance Minister Nirmala Sitharaman officially launched the NPS Vatsalya scheme in line with the announcement made in the Union Budget 2024.
What is the NPS Vatsalya scheme?
- The NPS Vatsalya is an extension of the existing National Pension Scheme.
- Managed by the Pension Fund Regulatory and Development Authority (PFRDA), the scheme will be focused on children and the investment made in this account will be to ensure long-term wealth.
- Under the scheme, parents can start saving for their child’s retirement fund.
- It functions similarly to the current NPS, which assists people in building a retirement fund by contributing consistently throughout the course of their careers.
- In contrast to conventional fixed-income alternatives, NPS contributions are invested in market-linked securities like equities and bonds, which could yield higher returns.
What are its features?
- The goal of NPS Vatsalya’s investment strategy is to give parents the ability to invest in a pension account as a way to save for their children’s future.
- The strategy attempts to ensure the participants’ long-term prosperity by utilizing the power of compounding.
- The initiative enables parents to put as little as Rs 1,000 into their child’s name each year by providing various contributions and investment options.
- This means that families with varying economic origins can participate in the programme.
- The scheme’s ability to allow parents to start saving for their child’s retirement at a very young age, even infancy, is one of its primary advantages. Over an extended investing term, compound interest can have a significant positive impact on earnings.
Withdrawal rules
- After three years of opening the NPS vatsalya account, partial withdrawals are allowed. Up to 25% of the corpus can be withdrawn for specific purposes, including education, medical treatment for certain illnesses, or disabilities over 75%.
- Once the child attains the age of 18, the corpus of up to Rs 2.5 lakh can be withdrawn entirely and if it exceeds, the 20% can be withdrawn and the rest 80% can be used for annuity purchase in the NPS.
- In the unfortunate event of a subscriber’s death, the entire corpus is given to the nominee, usually the guardian. If the guardian dies, a new guardian must be assigned after completing a new KYC.
- If both parents die, a legal guardian can manage the account without further contributions until the child turns 18.
What is the National Pension System (NPS)?
- It is a retirement benefit scheme introduced by the Government of India to facilitate regular income post-retirement for all subscribers.
- It was launched on 1st January, 2004. Initially, NPS was introduced for the new government recruits (except the armed forces).
- With effect from 1st May, 2009, NPS has been provided for all citizens of the country, including the unorganized sector workers on a voluntary basis.