Budget 2024: How does the newly launched NPS Vatsalya scheme benefit minors?

During her Union Budget 2024-25 address, Finance Minister Nirmala Sitharaman introduced a new scheme called NPS Vatsalya under the National Pension Scheme (NPS) for minors. The scheme enables parents and guardians to initiate pension planning for their children by making contributions that accumulate until the child reaches 18 years old. At that juncture, the accrued amount will be transferred to the standard NPS already established.

While unveiling the new plan that would ensure long-term financial security for children, the Finance Minister said, “On attaining the age of majority, the plan can be converted seamlessly into a non-NPS plan.”

What is NPS Vatsalya?

NPS Vatsalya offers families a systematic approach to ensure the future financial security of their children. By participating in this scheme, parents can lay a solid foundation for their children’s financial needs as they move into adulthood. This new scheme operates similarly to the NPS, which is widely regarded as a valuable tool for securing financial stability in retirement.

Those who are new to investing and seek to secure their financial future should understand how NPS promotes consistent contributions throughout one’s career, cultivating a saving habit and building a retirement corpus. Unlike conventional pension plans, NPS allocates your contributions into market-linked instruments such as stocks and bonds. This strategy offers the potential for higher returns compared to fixed-income options, facilitating substantial growth of your retirement savings.

Benefiting from the NPS scheme for minors

Crucially, the scheme offers flexibility. You have the freedom to select your investment mix and modify it as per changes in your risk tolerance or financial objectives. Moreover, it is portable, allowing you to change jobs without any impact on your NPS account.

The names of the top NPS pension schemes detailed on the NPS site include

• SBI Pension Funds
• LIC Pension Fund
• UTI Retirement Solutions
• HDFC Pension Management Company
• ICICI Prudential Pension Fund Management
• Kotak Mahindra Pension Fund
• Aditya Birla Sunlife Pension Management
• Tata Pension Management
• Max Life Pension Fund Management
• Axis Pension Fund Management

The following table illustrates how parents investing on behalf of their minor children can make use of this new scheme to not only invest on their children’s behalf but also to inculcate in their wards the importance of starting to invest early in life.

Assuming that your child is three years old. Investing in this scheme on your child’s behalf till he or she turns 18 years old will yield

The Central Government introduced NPS to provide individuals with a pension income to support their retirement needs. Once your child reaches 18 years old, they can manage the NPS Vatsalya scheme like a standard NPS account. This scheme, acclaimed as one of the finest retirement options, guarantees financial security for your child in their retirement years. It allows them to withdraw a portion of the accumulated corpus as a lump sum and receive the rest as regular pension payments, ensuring a steady income stream.

The introduction of NPS Vatsalya expands the NPS to cover minors, providing families with a fresh avenue to plan for their children’s financial security and ensuring a seamless transition into adult pension plans.