NPS Vatsalya Yojana: Finance Minister Nirmala Sitharaman announced the budget on 23 July, introducing several significant measures. Among them is the “New Pension Scheme (NPS) Vatsalya.” This scheme aims to secure the financial future of children by allowing parents and guardians to invest in an NPS account in the name of their minor children. Once these children become adults, their accounts will be converted into regular NPS accounts.
Scheme Overview
The NPS Vatsalya Yojana is a newly announced initiative that is yet to be launched. Designed for minors, this scheme enables parents and guardians to open NPS accounts in the name of their children. Upon reaching adulthood (18 years), these accounts will be converted into standard NPS accounts, ensuring a financially secure future with combined benefits of money and pension.
What is NPS?
The National Pension Scheme (NPS) is a tax-saving investment plan available to individuals aged between 18 and 60 years. Investors in this scheme receive a portion of their investment upon reaching the age of 60, with the remainder provided as a pension. Previously, minors were not eligible to invest in NPS, but the Vatsalya scheme now allows parents to invest on behalf of their minor children. The NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
Types of NPS Accounts
Initially launched for government employees, NPS was extended to private sector employees in 2009. The scheme offers two types of accounts:
- Tier-1 Account: Known as the retirement account, this is a mandatory account for retirement savings.
- Tier-2 Account: This is a voluntary savings account offering more flexibility.
Annual Investment Requirements
Annual investments are mandatory to maintain an NPS account. Investors must contribute a minimum of Rs 500 to Tier-1 and Rs 1000 to Tier-2 accounts each year. NPS is a regular investment scheme, requiring consistent contributions. Upon retirement, 60% of the accumulated amount is provided as a lump sum, while the remaining 40% is disbursed as a pension to the parents.
The NPS Vatsalya Yojana promises a secure financial future for children by allowing early investments in their names, transitioning into a reliable pension scheme as they grow older.
