New pension scheme for minors: Should you invest in NPS Vatsalya?

NPS Vatsalya is a National Pension System (NPS) contributory new pension scheme for minors. Its goal is to empower kids by establishing the retirement savings habit at a young age.

By allowing parents to deposit a minimum of ₹1,000 per month with no upper limit, the NPS Vatsalya scheme helps children develop disciplined saving habits. Until the child is 18, the plan is intended to be run by the parents; the account will be in the child's name. When the account reaches adulthood, it can be easily changed to a standard NPS account or another non-NPS plan.

NPS Vatsalya account opening eligibility

• All minor citizens up to 18 
• The account is opened in the minor's name and managed by their guardian until the child turns 18.
• The account can be created through registered Points of Presence (PoPs) with the Pension Fund Regulatory and Development Authority (PFRDA)
• These PoPs include major banks, India Post, and pension funds.
• For online account opening, you do so at the NPS Trust's eNPS platform

Documents required for opening NPS Vatsalya account

• Proof of date of birth for the minor
• KYC of the Guardian
• Permanent Account Number (PAN) of the Guardian
• NRE/NRO Bank Account (solo or joint)

Should you invest in NPS Vatsalya?

The launch of NPS Vatsalya is a huge step toward democratising pension planning in India, especially among the younger generation. “In our market survey, we have seen that as Indians invest across a growing number of instruments, retirement planning, though structured, seems to be neglected. This contributory immersion pension plan, which pertains to the proven NPS architecture, appears to provide such a solution with its offering of equity and debt investments accompanied by tax benefits. The scheme is appealing as it can help in the creation of wealth over the long term, through returns that are linked to the market, with the routine practice of making contributions being beneficial for parents in ensuring a good retirement for their children,” said Siddharth Maurya, Founder & Managing Director of Vibhavangal Anukulakara Private Limited

Given the present environment and increasing life expectancy in India, he added that it would make practical sense to begin early retirement planning with NPS Vatsalaya since there appears to be plenty of headroom for body formation and compound growth benefits.

 

NPS Vatsalya not ideal for life event savings

"The NPS Vatsalya, in my opinion, is not an attractive investment choice. The 75% cap on equity investments is too conservative, especially considering the long lock-in period. Additionally, the restrictions on withdrawals for life events like education, marriage, and home purchases make it less appealing as a savings tool for such milestones.

However, it can be a solid option for those looking for a structured, secure retirement plan for their special-needs children or for individuals wanting to instill disciplined savings early on for retirement. It offers the dual benefits of tax efficiency and a steady pension payout," said Rohit Beri, CEO and CIO of Arthalpha.

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Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.