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The NPS Vatsalya Scheme, launched in September 2024, allows parents to invest Rs 834 monthly for their child’s future, potentially growing to Rs 11 crore by retirement
If a parent starts contributing Rs 10,000 per year when the child is born and continues till the child turns 60, the investment grows substantially.
In an era where parents constantly worry about securing their children’s future, the Centre has introduced a financial avenue that could transform modest monthly savings into a multi-crore corpus. The NPS Vatsalya Scheme, launched in September 2024, is emerging as a powerful investment tool for low and middle-income families aiming to build substantial retirement funds for their children, with minimal contribution.
Under this scheme, a parent can invest just Rs 834 per month (or Rs 10,000 annually) in the name of their child, and if this investment is sustained until the child turns 60, the fund could swell to Rs 11 crore, thanks to the power of compounding, provided the returns remain around 12.86% annually under the aggressive investment option.
The NPS Vatsalya Scheme is a specialised extension of the National Pension System (NPS) and is available for all citizens who have a child under the age of 18. To enroll, the child must have a PAN card and Aadhaar. Once the child reaches adulthood at 18, the Vatsalya account automatically transforms into a Tier-1 NPS account, aligning it with the regular pension structure.
The scheme allows a minimum annual investment of Rs 1,000, with no cap on the maximum contribution. This flexibility makes it ideal for families looking to start small but scale up investments later.
Investment Choices Tailored To Risk Appetite
Investors in the NPS Vatsalya Scheme can choose from three preset investment modes:
- Aggressive: 75% in equities – high risk, high return.
- Moderate: 50% in equities – balanced risk and return.
- Conservative: 25% in equities – low risk, stable return.
Additionally, the Active Choice option lets investors set their own equity-to-debt ratio, giving them direct control over their investment strategy.
How Rs 834 A Month Becomes Rs 11 Crore
If a parent starts contributing Rs 10,000 per year when the child is born and continues till the child turns 60, the investment grows substantially, thanks to long-term compounding.
Here’s how it plays out under different return scenarios:
- At 12.86% return: Corpus grows to approximately Rs 11 crore.
- At 11.59% return: Corpus touches around Rs 5.97 crore.
- At 10% return: It still amounts to a significant Rs 2.75 crore.
However, these figures are projections. The actual returns depend on market performance and the asset allocation chosen by the investor.
Partial Withdrawals, Exit Rules
The scheme also builds in flexibility for emergencies. After three years of continuous investment, up to 25% of the fund can be withdrawn for essential needs such as education, medical emergencies, or disability-related expenses. This withdrawal is allowed up to three times during the investment term.
Upon the child turning 18:
1. If the fund exceeds Rs 2.5 lakh, 80% must be invested in an annuity plan (i.e., for pension), while 20% can be withdrawn in one go.
2. If the fund is Rs 2.5 lakh or less, the entire amount can be withdrawn as a lump sum.
3. In the unfortunate event of the child’s demise before maturity, the entire accumulated fund is transferred to the guardian.
What makes the NPS Vatsalya Scheme especially notable is its accessibility. In a financial landscape often dominated by high-risk, high-entry investments, this scheme provides an inclusive opportunityfor families with limited income to plan a prosperous future for their children.
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