NPS Vatsalya Completes Two Years
The National Pension System (NPS) Vatsalya scheme, a dedicated savings plan for minors, has marked its second anniversary with significant growth. The Pension Fund Regulatory and Development Authority (PFRDA) reported that the scheme now boasts 4.9 lakh enrolled accounts and an impressive ₹403 crore in Assets Under Management (AUM).
Launched on September 18, 2024, following its announcement in the Union Budget 2024-25, NPS Vatsalya enables parents or legal guardians to open and manage an account for a minor. The child remains the sole subscriber and beneficiary, ensuring their financial future is secured.
Eligibility and Account Operation
The NPS Vatsalya scheme is open to Indian citizens, Non-Resident Indians (NRIs), and Overseas Citizens of India (OCIs) who are under 18 years of age. A parent or legal guardian is responsible for operating the account until the child reaches adulthood.
Investment Flexibility and Contributions
Contributions made to NPS Vatsalya are invested in market-linked instruments through pension funds regulated by PFRDA. The scheme also allows for 'gift contributions' from relatives and friends, further aiding a child's savings growth.
A notable revision to the scheme's framework came into effect on February 23, 2025, via the NPS Vatsalya Scheme Guidelines, 2025. This update significantly reduced the minimum contribution to just ₹250, while removing any upper limit. Furthermore, it expanded investment flexibility, permitting pension funds to design asset allocation strategies with equity exposure of up to 100%, within regulatory limits.
Partial Withdrawal Rules Updated
For financial needs, partial withdrawals are permitted after an account has been active for three years. These withdrawals can be made for specific purposes such as higher education, treatment of certain illnesses, or disability-related requirements. The revised framework increased the number of permissible partial withdrawals during the minor's period from two to four, offering greater liquidity when needed.
Transition at Adulthood
Upon turning 18, the child has several options: they can choose to continue with NPS Vatsalya until the age of 21, transition their account to NPS Tier-I, or exit the scheme entirely, subject to applicable rules. If no choice is made between the ages of 18 and 21, the account automatically shifts to a higher-equity scheme under the Multiple Schemes Framework offered by the same pension fund. Essential KYC and other formalities must be completed once the child reaches adulthood.
Tax Benefits and Future Outlook
NPS Vatsalya also provides tax benefits consistent with the broader NPS framework, subject to prevailing income tax regulations. PFRDA has stated its commitment to expanding the scheme's reach in its third year, focusing on increasing awareness among children, parents, teachers, and other stakeholders about the importance of long-term, retirement-oriented savings from an early age.