THE NPS VATSALYA SCHEME APPLY ONLINE @npstrust.org.in

THE NPS VATSALYA SCHEME APPLY ONLINE @npstrust.org.in

The NPS Vatsalya Scheme is a contributory pension plan launched by the Government of India, designed specifically for minors. It allows parents and guardians to start building a retirement corpus for their children from an early age, leveraging the power of compounding over a long horizon.

Below is a comprehensive guide to the scheme, covering eligibility, investment mechanics, withdrawal rules, tax implications, and the transition process when the child turns 18.

1. Core Objective

The primary goal of NPS Vatsalya is to inculcate financial discipline and ensure long-term wealth creation. By investing small amounts while the child is young, the corpus has decades to grow through market-linked returns before the child reaches retirement age.

2. Eligibility Criteria

Who can open: Any parent (natural or legal guardian) can open the account on behalf of a minor child.
Who is the beneficiary: The minor child is the sole beneficiary of the account.
Citizenship: Available to all minor citizens of India. Non-Resident Indians (NRIs) and Overseas Citizens of India (OCI) are also eligible, subject to FEMA guidelines.
Age Limit: The child must be below 18 years of age at the time of account opening.
KYC: The account is opened based on the Guardian's KYC (Know Your Customer) documents.

3. Contribution Structure

The scheme is designed to be accessible to families across different income groups.

Minimum Contribution: ₹1,000 per year.
Maximum Contribution: There is no upper limit on the contribution amount.
Frequency: Contributions can be made monthly, quarterly, yearly, or as irregular lump sums, provided the minimum annual requirement is met.
Non-Contribution Penalty: If the minimum contribution of ₹1,000 is not made in a financial year, the account may be frozen and will require a small penalty fee to reactivate.

4. Investment Options

The money contributed to NPS Vatsalya is invested in a mix of Equity (E), Corporate Debt (C), and Government Securities (G). Guardians can choose how the money is invested based on their risk appetite:

A. Auto Choice (Lifecycle Fund)

This is the default and passive option where the asset allocation is automatically adjusted based on age (though for minors, it remains static until they are older).

LC-75 (Aggressive): High exposure to equity (75%) for higher growth potential.
LC-50 (Moderate): Balanced exposure (50% equity). This is usually the default option if no choice is made.
LC-25 (Conservative): Low exposure to equity (25%) with higher safety in government/corporate bonds.

B. Active Choice

The guardian actively decides the allocation percentages.

Equity (E): Capable of investing up to 75% in equity.
Corporate Bonds (C): Up to 100%.
Government Securities (G): Up to 100%.
Alternative Assets (A): Up to 5% (e.g., REITs, AIFs).

5. Withdrawal and Exit Rules

Since this is a pension scheme, it has a "lock-in" nature, but liquidity is provided for specific needs.

A. Partial Withdrawals (Before Age 18)

Guardians can withdraw funds for essential requirements under the following conditions:

Eligibility: allowed only after 3 years of account opening.
Limit: Up to 25% of the total contributions (principal only, not the interest/growth) can be withdrawn.
Frequency: Maximum 3 times during the entire tenure until the child turns 18.
Valid Reasons: Education, treatment of specified critical illnesses, or disability (>75%).

B. Exit/Transition (At Age 18)

When the minor turns 18, the plan reaches a critical juncture. The account does not automatically close; instead, it shifts legal status.

Seamless Conversion: The NPS Vatsalya account automatically converts into a regular NPS Tier-1 (All Citizen) Account. The child (now an adult) must complete fresh KYC within 3 months to take control of the account.
Exit Option (Closing the account at 18):
- If the total corpus is ≤ ₹2.5 Lakh: The entire amount can be withdrawn as a lump sum.
- If the total corpus is > ₹2.5 Lakh: At least 80% of the corpus must be used to purchase an Annuity (a monthly pension plan), and only 20% can be withdrawn as a lump sum.
- Note: Because 80% gets locked into a pension at age 18, most advisors recommend continuing the account rather than exiting at this stage.

6. Death Benefits

Death of the Minor: The entire accumulated corpus (100%) is returned to the Guardian (Nominee). The account is closed.
Death of the Guardian: The account continues. A new guardian (e.g., the other parent or legal guardian) must be registered with fresh KYC to operate the account until the child turns 18. No withdrawal is forced; the corpus stays invested.

7. Tax Benefits

Contributions to NPS Vatsalya offer tax efficiency for the parents.

Section 80C: The principal contribution is eligible for deduction up to the overall limit of ₹1.5 Lakh per financial year (clubbed with other 80C investments like PPF, LIC, etc.).
Section 80CCD(1B): Parents can also claim an additional deduction of up to ₹50,000 exclusively for NPS contributions.
- Important: This benefit is usually applicable to the contributor. Since the parent is contributing, they can avail of the tax break. However, tax laws on clubbing of income for minors can be complex, so it is advisable to consult a tax advisor for the specific year of filing.

8. Account Opening Process

You can open an account through two modes:

Online (eNPS)

Visit the eNPS website (e.g., Protean or KFintech).
Select "NPS Vatsalya" or "Minor Account".
Fill in the Guardian’s details (PAN, Aadhaar) and the Minor’s details (Date of Birth proof).
Upload scanned signatures and photos.
Make the initial payment (Min ₹1,000).
A PRAN (Permanent Retirement Account Number) is generated in the minor’s name.

Offline (Points of Presence - POPs)

Visit a designated bank branch or Post Office (POPs).
Request the NPS Vatsalya registration form.
Submit KYC documents for the Guardian and Date of Birth proof for the minor.
Deposit the contribution via cheque or demand draft.

9.Comparison: NPS Vatsalya vs. PPF/SSY

Feature	NPS Vatsalya	Public Provident Fund (PPF)	Sukanya Samriddhi (SSY)
Risk	Market-Linked (Moderate/High)	Guaranteed (Low)	Guaranteed (Low)
Returns	Potential 9-12% (Equity dependent)	Fixed (approx. 7.1%)	Fixed (approx. 8.2%)
Limit	No upper limit	Max ₹1.5 Lakh/year	Max ₹1.5 Lakh/year
Eligibility	All Minors	All Minors	Only Girl Children
Lock-in	Till Age 60 (Partial exit at 18)	15 Years	Till age 21 or Marriage
Asset Class	Equity + Debt	Debt only	Debt only

10. Strategic Benefits

Power of Compounding: Starting at age 5 instead of age 25 can result in a retirement corpus that is significantly larger due to the extra 20 years of compounding.
Pension Habit: It ensures the child enters adulthood with a retirement account already active, encouraging them to continue the habit.
Inflation Hedge: Unlike PPF, the equity component in NPS helps beat long-term inflation.

Summary Table

Parameter	Details
Beneficiary	Minor (0-18 years)
Operator	Guardian
Min. Deposit	₹1,000 per annum
Equity Cap	75%
Withdrawal	25% for education/illness (after 3 years)
At Age 18	Converts to Regular NPS (Tier-1)