The National Pension System (NPS) has been a popular retirement savings option in India, offering individuals aged 18 to 75 the opportunity to build a retirement corpus through regular contributions. In a new development, Finance Minister Nirmala Sitharaman announced the NPS Vatsalya scheme , which extends the NPS benefits to minors, allowing parents and guardians to start investing early for their children. This article explores the key differences between the traditional NPS and NPS Vatsalya , examining how starting early with NPS Vatsalya could help generate a larger retirement corpus.
What Is NPS Vatsalya?
NPS Vatsalya is an extended version of the existing NPS, designed specifically to benefit minors. Introduced during the 2024 Budget speech, this scheme allows parents and guardians to open an NPS account on behalf of their children, enabling them to start investing from an early age. The account operates under the guardianship of the parent until the child turns 18, after which it is converted into a regular NPS account.
Deepak Mohanty, Chairman of the Pension Fund Regulatory and Development Authority (PFRDA), describes NPS Vatsalya as a step towards financial freedom for children. The idea is to provide a head start for minors in building a retirement fund through the power of compounding. Contributors can choose to make either lump-sum or monthly investments, with a minimum yearly contribution of Rs 1,000. This market-linked scheme offers flexibility in investment options and aims to build a substantial corpus by the time the individual reaches retirement age.
How Does NPS Vatsalya Work?
Opening an NPS Vatsalya account involves a straightforward registration process, especially when using an Aadhaar card. Here’s what is needed
Date of Birth Proof: A document that verifies the minor's date of birth.
Guardian’s Signature: The signature of the parent or guardian managing the account.
Additional Documents: For NRI and OCI subscribers, additional documentation such as a scanned copy of the passport, proof of foreign address, and bank proof are required.
What Is the Standard NPS?
The National Pension System (NPS) is a retirement savings scheme open to Indian citizens aged 18 to 75. Subscribers can contribute to the scheme on a monthly or lump-sum basis. NPS is market-linked, with subscribers allowed to choose an equity exposure of up to 75% based on their age and risk tolerance. They can invest in NPS mutual funds, which track the Nifty 50 index, as well as various debt schemes.
Upon reaching the age of 60, NPS account holders can withdraw up to 60% of their accumulated corpus. The remaining 40% must be used to purchase an annuity, which provides a regular pension. NPS offers different types of pensions, including annuity for life without return on purchase (ROP), joint life annuity, and family income options.
NPS vs NPS Vatsalya: Key Differences
The primary advantage of NPS Vatsalya lies in the extended investment period. Starting contributions early gives account holders more time to benefit from the power of compounding. Even with smaller monthly contributions, the extra years of growth can result in a significantly higher corpus by the time the individual reaches retirement age.
For example, if a minor starts an NPS Vatsalya account and continues to contribute regularly, the compounded growth over several decades will yield a larger retirement fund than someone who starts contributing to NPS at age 18. Thus, NPS Vatsalya offers a clear advantage in building a more substantial retirement corpus.
NPS vs NPS Vatsalya: Which Offers a Higher Corpus?
Since NPS Vatsalya allows for an earlier start, it inherently offers more years for the invested amount to grow through compounding. This means that even if an NPS Vatsalya subscriber contributes a smaller amount compared to a regular NPS account holder, the longer investment horizon will often result in a larger corpus at retirement. Therefore, those who start with NPS Vatsalya and convert to a regular NPS account upon turning 18 have a distinct advantage in accumulating a higher retirement fund.
NPS Vatsalya is a welcome addition to the National Pension System, providing an opportunity for parents to start planning their children's financial future early. By offering more years of investment growth, NPS Vatsalya can generate a significantly higher corpus, making it an attractive option for those looking to maximise their retirement savings. For parents and guardians seeking to secure a financially stable future for their children, NPS Vatsalya could be the perfect solution.
What Is NPS Vatsalya?
NPS Vatsalya is an extended version of the existing NPS, designed specifically to benefit minors. Introduced during the 2024 Budget speech, this scheme allows parents and guardians to open an NPS account on behalf of their children, enabling them to start investing from an early age. The account operates under the guardianship of the parent until the child turns 18, after which it is converted into a regular NPS account.
Deepak Mohanty, Chairman of the Pension Fund Regulatory and Development Authority (PFRDA), describes NPS Vatsalya as a step towards financial freedom for children. The idea is to provide a head start for minors in building a retirement fund through the power of compounding. Contributors can choose to make either lump-sum or monthly investments, with a minimum yearly contribution of Rs 1,000. This market-linked scheme offers flexibility in investment options and aims to build a substantial corpus by the time the individual reaches retirement age.
How Does NPS Vatsalya Work?
- Conversion to Regular NPS: When the minor turns 18, their NPS Vatsalya account is automatically converted into a standard NPS account. They can then continue contributing to this account until they reach the age of 75, much like any other NPS account holder.
- Contribution Flexibility: Investors can make contributions either as a lump sum or on a monthly basis, depending on their financial situation. The minimum yearly contribution is set at Rs 1,000, making it accessible for a wide range of contributors.
- Market-Linked Growth: Like the regular NPS, NPS Vatsalya is market-linked, providing investment options that include equity and debt schemes. Subscribers can choose their level of equity exposure according to their risk appetite and investment goals.
Opening an NPS Vatsalya account involves a straightforward registration process, especially when using an Aadhaar card. Here’s what is needed
The National Pension System (NPS) is a retirement savings scheme open to Indian citizens aged 18 to 75. Subscribers can contribute to the scheme on a monthly or lump-sum basis. NPS is market-linked, with subscribers allowed to choose an equity exposure of up to 75% based on their age and risk tolerance. They can invest in NPS mutual funds, which track the Nifty 50 index, as well as various debt schemes.
Upon reaching the age of 60, NPS account holders can withdraw up to 60% of their accumulated corpus. The remaining 40% must be used to purchase an annuity, which provides a regular pension. NPS offers different types of pensions, including annuity for life without return on purchase (ROP), joint life annuity, and family income options.
NPS vs NPS Vatsalya: Key Differences
- Eligibility: The traditional NPS is open to individuals aged 18 to 75, while NPS Vatsalya is specifically aimed at minors, allowing parents and guardians to set up an account on their behalf.
- Contribution Period: With NPS Vatsalya, the investment starts at a much younger age, providing more years for the corpus to grow through compounding. In contrast, a standard NPS account can only be opened once the individual turns 18.
- Conversion: NPS Vatsalya accounts convert into regular NPS accounts once the minor reaches 18. From that point, the account operates under the standard NPS rules, allowing contributions until the age of 75.
The primary advantage of NPS Vatsalya lies in the extended investment period. Starting contributions early gives account holders more time to benefit from the power of compounding. Even with smaller monthly contributions, the extra years of growth can result in a significantly higher corpus by the time the individual reaches retirement age.
For example, if a minor starts an NPS Vatsalya account and continues to contribute regularly, the compounded growth over several decades will yield a larger retirement fund than someone who starts contributing to NPS at age 18. Thus, NPS Vatsalya offers a clear advantage in building a more substantial retirement corpus.
NPS vs NPS Vatsalya: Which Offers a Higher Corpus?
Since NPS Vatsalya allows for an earlier start, it inherently offers more years for the invested amount to grow through compounding. This means that even if an NPS Vatsalya subscriber contributes a smaller amount compared to a regular NPS account holder, the longer investment horizon will often result in a larger corpus at retirement. Therefore, those who start with NPS Vatsalya and convert to a regular NPS account upon turning 18 have a distinct advantage in accumulating a higher retirement fund.
NPS Vatsalya is a welcome addition to the National Pension System, providing an opportunity for parents to start planning their children's financial future early. By offering more years of investment growth, NPS Vatsalya can generate a significantly higher corpus, making it an attractive option for those looking to maximise their retirement savings. For parents and guardians seeking to secure a financially stable future for their children, NPS Vatsalya could be the perfect solution.
