Government’s New Scheme: Open An NPS Account For Children – Here’s How You Can Benefit
The government has introduced a new scheme in the budget that allows parents and guardians to open National Pension Scheme ( NPS ) accounts in the name of their children. This initiative, named NPS Vatsalya, aims to secure a stable financial future for children as they grow into adulthood. Through this scheme, parents and guardians can directly invest in an NPS account on behalf of their minor children. It’s an excellent option for those looking to secure their children's financial future and provide them with financial security for retirement.
What Is the NPS Vatsalya Scheme ?
NPS Vatsalya is a special variant of the existing National Pension Scheme, specifically designed for minors. Parents and guardians can open an NPS account for their children and make regular contributions, either monthly or annually, until the child turns 18. This allows parents to plan both their child’s career and pension in advance.
Single Account per Child
Previously, only individuals between the ages of 18 and 70 could open an NPS account. However, under the NPS Vatsalya Yojana, accounts can now be opened for individuals under 18 years of age. Each child is allowed to have only one NPS account, which will be managed by the parents or guardians until the child reaches 18.
Options Available When the Child Turns 18
Once the child turns 18, the NPS Vatsalya account will be transferred to their control. The child can then decide to either convert the account into a regular NPS account and continue it until they turn 75 or withdraw the funds and invest them in another scheme.
Flexible Investment Options
Parents can deposit a minimum of Rs 500 per month or a maximum of Rs 1.50 lakh per year into their child’s NPS account. Upon reaching the age of 18, the child can choose to withdraw the entire amount or start receiving a pension upon reaching 60 years of age.
Long-Term Investment Benefits
Experts suggest that if a parent invests Rs 5,000 per month into the NPS Vatsalya account, it would amount to Rs 60,000 annually. By the time the child turns 18, the investment would total Rs 10.80 lakh. Assuming a 10% annual return, the total fund could grow to Rs 30.27 lakh.
If the child continues the NPS account until the age of 60, the account could accumulate Rs 36 lakh. With a 10% return, the total fund could grow to Rs 20.50 crore. Upon retirement, this could result in a payout of Rs 12 crore. According to current rules, an annuity plan must be purchased, securing a significant monthly pension.
How to Open an NPS Account
NPS is a long-term investment scheme managed by the Pension Fund Regulatory and Development Authority (PFRDA). Opening an NPS account is straightforward and can be done online through the PFRDA’s eNPS website. Most government and private banks also offer this service.
Why Is This Scheme Beneficial?
- Upon turning 18, the NPS Vatsalya account can be converted into a regular NPS account.
- The entire amount can be withdrawn without converting it into a regular NPS account.
- The scheme offers portability, meaning the account remains unchanged even if you change jobs.
- Continuation of the account for a long period can result in significant fund accumulation.
- At retirement, 60% of the amount in the account can be withdrawn.
- A portion of the fund can be withdrawn tax-free at the time of retirement.
The NPS Vatsalya scheme offers a unique opportunity for parents to plan and secure their children’s financial future, ensuring stability and financial security in the long run.