NPS Vatsalya Scheme: A Government Initiative for Securing the Financial Future of Minor Children

The Government of India has consistently undertaken initiatives to strengthen the financial security of citizens across all age groups. Recognizing the importance of early financial planning and long-term savings, the Ministry of Finance introduced the NPS Vatsalya Scheme in the Union Budget for the financial year 2024–25. This innovative pension-based savings scheme is specifically designed for minor children, enabling parents and guardians to begin retirement planning for their children at an early age.

The NPS Vatsalya Scheme operates under the framework of the National Pension System (NPS) and is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). Under this scheme, parents or legal guardians can open an NPS account in the name of a minor child and make regular contributions until the child attains the age of 18 years. Upon reaching adulthood, the account is seamlessly converted into a regular NPS Tier-I (All Citizen) account, ensuring continuity of investment and long-term wealth accumulation.

The scheme not only promotes disciplined savings but also instills financial awareness among young individuals from an early age. With flexible contribution limits, multiple investment options, and regulated fund management, the NPS Vatsalya Scheme serves as a strong foundation for the future financial independence and retirement security of India’s next generation.

Dates and Objectives of the Scheme

Launch and Announcement

• The NPS Vatsalya Scheme was announced by the Hon’ble Finance Minister of India during the presentation of the Union Budget for FY 2024–25.
• The scheme is implemented under the National Pension System (NPS) framework and governed by regulations issued by the Pension Fund Regulatory and Development Authority (PFRDA).

Objectives of the Scheme

The primary objectives of the NPS Vatsalya Scheme are as follows:

1. Early Retirement Planning
   To encourage parents and guardians to begin retirement savings for their children from a young age, ensuring long-term financial stability.
2. Financial Inclusion of Minors
   To bring minor citizens into the formal pension system and familiarize them with structured savings and investments.
3. Promotion of Financial Discipline
   To instill habits of regular saving, long-term investment, and financial responsibility among families.
4. Continuity of Pension Coverage
   To ensure a smooth transition of the minor’s account into a standard NPS Tier-I account upon attaining adulthood without administrative hurdles.
5. Wealth Creation Through Market-Linked Returns
   To provide exposure to diversified investment options including equity, government securities, and corporate debt under a regulated pension framework.
6. Social Security Strengthening
   To contribute toward strengthening India’s pension ecosystem by expanding its coverage to younger demographics.

Key Features of the NPS Vatsalya Scheme

The NPS Vatsalya Scheme offers several unique and investor-friendly features that make it an attractive long-term savings option for minors:

1. Dedicated Pension Account for Minors

• An NPS account is opened in the name of a minor child, operated and managed by a parent or legal guardian.
• The account remains active until the child reaches the age of 18.

2. Seamless Transition at Age 18

• Upon attaining the age of majority, the account is automatically converted into a regular NPS Tier-I (All Citizen) account.
• Fresh Know Your Customer (KYC) verification of the subscriber is required within three months of turning 18.

3. Flexible Contribution Structure

• Minimum annual contribution is ₹1,000.
• There is no upper limit on the amount that can be contributed.
• Contributions can be made monthly, quarterly, or annually as per convenience.

4. Multiple Investment Choices

The scheme offers three modes of investment:

• Default Choice
  Moderate Lifecycle Fund (LC-50) with 50% equity exposure.
• Auto Choice
  • Aggressive Lifecycle Fund (LC-75) with up to 75% equity
  • Moderate Lifecycle Fund (LC-50) with 50% equity
  • Conservative Lifecycle Fund (LC-25) with 25% equity
• Active Choice
  Guardian can actively allocate investments across:
  • Equity: up to 75%
  • Government Securities: up to 100%
  • Corporate Debt: up to 100%
  • Alternate Assets: up to 5%

5. Regulated and Transparent System

• The scheme is governed by PFRDA ensuring transparency, accountability, and investor protection.
• Funds are managed by professional Pension Fund Managers.

Financial Assistance / Pension Amount

The NPS Vatsalya Scheme is not a scholarship-based scheme and does not provide a fixed scholarship amount. Instead, it functions as a saving-cum-pension scheme where benefits depend on the contributions made and market-linked returns earned over time.

Contribution Details

• Account Opening Contribution: Minimum ₹1,000
• Subsequent Contributions: Minimum ₹1,000 per financial year
• Maximum Contribution: No limit

Pension Wealth Accumulation

• The final pension corpus depends on:
  • Total contributions made by the guardian
  • Duration of investment
  • Chosen investment option
  • Market performance

Withdrawal at Exit

• At least 80% of the accumulated pension wealth must be used to purchase an annuity.
• The remaining 20% can be withdrawn as a lump sum.
• If total pension wealth is ₹2.5 lakh or less, the subscriber may withdraw the entire amount.

Eligibility Criteria

To open an account under the NPS Vatsalya Scheme, the following eligibility conditions must be fulfilled:

1. Citizenship
   • The minor must be a Citizen of India.
2. Age Limit
   • The scheme is applicable to minors below 18 years of age.
3. Guardian Requirement
   • The account must be opened and operated by a natural or legal guardian on behalf of the minor.
   • In case of a court-appointed guardian, relevant court orders must be submitted.
4. KYC Compliance
   • The guardian must comply with all KYC norms prescribed by the PFRDA.
   • Aadhaar-based or equivalent KYC is mandatory.
5. Operation of Account
   • The guardian operates the account exclusively in the interest of the minor subscriber.

Reservation Policy

The NPS Vatsalya Scheme follows a universal eligibility policy. There is no reservation or quota system based on caste, religion, gender, income group, or region.

• The scheme is open to all Indian citizens below 18 years of age.
• Equal access is provided to all eligible minors irrespective of socio-economic background.
• The focus of the scheme is financial inclusion and long-term savings rather than targeted welfare distribution.

Exit and Withdrawal Provisions

Partial Withdrawal Before 18 Years

Partial withdrawals are allowed under specific conditions:

• Purpose:
  • Education of the subscriber
  • Treatment of specified illnesses
  • Disability of more than 75%
  • Other reasons specified by PFRDA in the interest of the minor
• Conditions:
  • Withdrawal allowed after 3 years from account opening
  • Maximum 25% of subscriber’s contribution (excluding returns)
  • Allowed up to three times before attaining 18 years
  • Based on declaration by the guardian

In Case of Death

• Death of Minor: Entire accumulated pension wealth is paid to the guardian.
• Death of Guardian: Another guardian must be registered with proper KYC.
• Death of Both Parents: Legally appointed guardian may continue the account.

Exit at Age 18

• Exit permitted only upon attaining 18 years.
• Mandatory annuitization of at least 80% of corpus.
• Full withdrawal allowed if corpus is ₹2.5 lakh or less.

Distribution of Benefits

The benefits under the NPS Vatsalya Scheme are distributed in the following manner:

1. Account Creation
   • PRAN (Permanent Retirement Account Number) is generated after successful registration and contribution.
2. Fund Management
   • Contributions are invested through approved pension fund managers.
3. Corpus Accumulation
   • Pension wealth accumulates through market-linked investments.
4. Transition to Tier-I Account
   • On attaining 18 years, the account converts to a regular NPS account.
5. Annuity Purchase and Lump Sum Payment
   • On exit, benefits are distributed as per NPS exit norms.

Required Documents

The following documents are required while applying for the scheme:

• Aadhaar Card / PAN Card / Driving License of the guardian
• Proof of Date of Birth of minor (Birth Certificate, School Certificate, Passport, etc.)
• Guardian’s signature
• Bank proof (for NRI/OCI, if applicable)
• Foreign address proof (for OCI subscribers, if applicable)
• Passport copy (for NRI subscribers, if applicable)

Application Process (Step-by-Step)

Online Application Process

Step 1:
Access the official NPS Trust platform and select the option to open an NPS Vatsalya account.

Step 2:
Choose any one of the Central Recordkeeping Agencies (CRAs).

Step 3:
Enter basic details of the minor and the guardian.

Step 4:
Complete OTP authentication using registered mobile number and email.

Step 5:
Guardian’s KYC details are fetched from authorized databases; remaining details are filled manually.

Step 6:
Upload proof of date of birth of the minor.

Step 7:
Enter FATCA details and make an investment choice.

Step 8:
Verify details through OTP authentication.

Step 9:
Make the initial contribution of minimum ₹1,000.

Step 10:
PRAN is generated after successful payment.