NPS for Minors: A Smart Move for Securing Your Child’s Financial Future

What is NPS for Minors?

You are already familiar with the NPS meaning and how it’s a lucrative option for long-term wealth generation. On July 23, 2024, Union Minister for Finance and Corporate Affairs, Ms Nirmala Sitharaman, introduced the National Pension System Vatsalya scheme, designed to lay the foundation for long-term financial security for minors. This groundbreaking initiative was unveiled as part of the Union Budget 2024–25 and aims to encourage early saving habits, helping children secure a prosperous financial future. 

The NPS Vatsalya scheme is a practical tool for financial growth and a symbol of responsible financial management from an early age, setting a new standard for saving. Administered by the Pension Fund Regulatory and Development Authority (PFRDA), the scheme is part of the government’s broader efforts to ensure financial security for future generations, fostering a culture of saving from youth onwards.

Eligibility Criteria

The NPS Vatsalya scheme offers a unique opportunity to ensure financial stability for minors, and its eligibility criteria are straightforward:

1. Indian Citizens: The NPS Vatsalya pension scheme is open to all Indian citizens under 18, including minor children.
2. NRIs and OCIs: Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) under 18 can also take advantage of this scheme, ensuring that children living abroad have the same opportunity to build their financial future.
3. Guardian’s Role: Parents and legal guardians can create and manage an NPS Vatsalya account for their minor children.
4. Nominee: The parent or guardian is designated as the nominee for the account, making them the point of contact for all matters related to the account until the child turns 18.
5. Beneficiary: While the parents or guardians manage the account, the child remains the sole beneficiary of all contributions, returns, and benefits accrued, securing their financial future.
6. Account Management Transition: On the child’s 18th birthday, after completing the necessary KYC process, the account management rights are transferred to the child, marking the transition to full financial autonomy.

Steps to Open/Apply for the NPS Vatsalya Scheme

Here are the detailed steps for the NPS Vatsalya scheme apply online:

1. Open eNPS Website: To begin the registration process, open the eNPS website.
2. Click on ‘Register Now’: Locate the ‘NPS Vatsalya (Minors)’ option and select the ‘Register Now’ option.
3. Give Details About Guardians: You must provide the birth date of the guardian, mobile number, PAN number, and email address. After entering the information, click ‘Begin Registration’.
4. Verify OTP: An OTP will be sent to the guardian’s mobile number and email. Enter the OTP received to verify the details forNPS Vatsalya registration online.
5. Acknowledgement Number: After verification, an acknowledgement number will be generated. Click ‘Continue’ to proceed to the next step.
6. Fill in Minor and Guardian Details: Next, enter the minor’s and guardian’s details accurately. Upload the required documents, such as proof of identity, age, and address. Once confirmed, click ‘Confirm.’
7. Make the Initial Contribution: To complete the process, make the initial contribution of Rs. 1,000 (the minimum required to open the account).
8. Complete Authentication: You must complete the dual OTP or eSign authentication to confirm your identity.
9. Account Generation: A PRAN (Permanent Retirement Account Number) will be generated after all steps are completed successfully. The NPS Vatsalya account will be officially opened in the minor’s name.

Documents Required

With the right documents, parents or guardians can easily establish an NPS Vatsalya account, beginning to secure their child’s financial future. To open an NPS Vatsalya account for a minor, the following documents are necessary:

1. Birth Date Proof for the Minor: Acceptable documents for this purpose include a Passport, School Leaving Certificate, Matriculation Certificate, PAN card, or Birth Certificate.
2. KYC of the Guardian: The guardian must provide proof of identity and address, which can be any of the following: Aadhaar card, Driving License, Passport, Voter ID card, National Rural Employment Guarantee Act (NREGA) Job Card, or documents from the National Population Register.
3. Form 60 Declaration: According to Rule 114B, the guardian must submit their PAN card or a Form 60 declaration if the PAN is unavailable.
4. NRE/NRO Bank Account: Setting up the account requires the minor's NRE or NRO bank account details, whether held solely or jointly, for OCI/ NRI guardians.

Required Contribution 

This scheme provides flexibility and control in the context of contributions and investment choices, making it an appealing option for parents looking to secure their child's financial future. Here’s a breakdown of the contribution and investment options:

1. Account Opening Contribution: You must deposit a minimum of one thousand rupees to open an NPS Vatsalya account. However, there is no upper limit on the initial contribution, so you can make a larger deposit if you desire.
2. Subsequent Contributions: After the initial NPS Vatsalya Yojana deposit. The minimum contribution is one thousand rupees per year, but there is no cap on the total amount you can contribute. This flexibility allows you to increase the investment over time based on your financial capabilities.

Investment Options

When it comes to managing investments within this scheme, guardians have three key options:

• Natural Choice: The Moderate Life Cycle Fund is the default option, with half of the investment allocated to equities. This provides a balanced approach, aiming for moderate growth while managing risk.
• Auto Choice: For guardians who want to select an investment strategy based on their risk tolerance, the Auto Choice option offers three different Lifecycle Funds:
  • Aggressive LC-75: For those willing to take higher risks, this option allocates 75% of the investment to equities, aiming for greater returns.
  • Moderate LC-50: This balanced strategy dedicates 50% of the investment to equities, maintaining a moderate risk level while targeting steady growth.
  • Conservative LC-25: For more cautious investors, this fund keeps only 25% in equities, reducing exposure to market volatility but still offering some growth potential.
• Active Choice: This option gives guardians complete control over the asset allocation, allowing them to choose how to distribute the funds across four asset classes:
  • Government Securities: Up to 100% can be invested here for maximum safety.
  • Equities: Up to 75% can be allocated to equities for potentially higher returns.
  • Alternative Assets: Up to 5% can be invested in alternative assets to diversify the portfolio.
  • Corporate Debt: Up to 100% can be invested in corporate debt for stability.

Withdrawal and Exit Rules

The NPS Vatsalya Scheme offers flexibility regarding withdrawals and exits, ensuring that parents or guardians can access funds when needed while preparing for the beneficiary's financial future.

Partial Withdrawals Before Age 18

Partial withdrawals can be made three years after the NPS Vatsalya account is opened. Up to 25% of the guardian’s contributions can be withdrawn.

Withdrawals can be made a maximum of three times before the child turns 18. The funds can be withdrawn for specific reasons such as educational expenses, treatment of critical illnesses, or disabilities over 75%, as per the guidelines of the PFRDA.

Conversion to Regular NPS Account at Age 18

Upon turning 18, the beneficiary can opt to transition from the NPS Vatsalya Scheme to a regular NPS account, which they can then manage independently.

Within three months of turning 18, the beneficiary must complete a new KYC process.

The accumulated corpus in the NPS Vatsalya account will be transferred to the regular NPS account, ensuring the continuity of the investment.

Exit Option at Age 18

The beneficiary also has the option to exit the NPS Vatsalya Scheme instead of converting it to a regular NPS account. To withdraw the accumulated balance, the following rules apply:

• At least 80% of the total corpus must be reinvested into an annuity plan for future income.
• The remaining 20% of the corpus may be withdrawn as a lump sum.
• If the total corpus is less than Rs. 2.5 lakh, the full amount can be withdrawn as a lump sum.

Untimely Death

In the unfortunate event of the beneficiary’s death (before turning 18), the guardian or nominee will receive the entire corpus accumulated in the account.

If the guardian passes away, a new KYC process will be required to register a new guardian under the scheme.

If both parents pass away, the child’s legal guardian may continue the NPS Vatsalya Scheme without having to make further contributions until the child turns 18.

NPS for Minors Tax Benefits

The Union Budget 2025 has proposed extending the National Pension System (NPS) tax benefits to contributions made under the NPS Vatsalya scheme. The proposed NPS Vatsalya tax benefits align with the provisions under sub-section (1B) of section 80CCD of the Income-tax Act, 1961.

Parents or guardians contributing to an NPS Vatsalya account on behalf of a minor will be eligible for a tax deduction of up to ₹50,000 per annum under section 80CCD(1B). This deduction will apply to the total taxable income of the parent or guardian.

Note: The NPS Vatsalya scheme tax benefit will only take effect after approval by both houses of Parliament.

Conclusion

The NPS Vatsalya Scheme is a progressive initiative to help parents and guardians build a secure financial future for minors. With flexible contributions, multiple investment choices, and long-term benefits, this scheme ensures that children have a solid financial foundation by the time they turn 18. Whether for education, long-term wealth accumulation, or financial security, this scheme provides a structured and well-regulated investment avenue.

FAQs

1. Which is better, NPS or Sukanya Samriddhi Yojana?

It depends on your financial goals. Sukanya Samriddhi Yojana (SSY) is exclusively for girls and offers a fixed return backed by the government. NPS Vatsalya, on the other hand, is available for all minors, offers market-linked returns, and allows diversified investment options.

2. Can I open an NPS account for a minor?

Yes, parents or guardians can open an NPS Vatsalya account for minors under 18. The guardian will operate the account until the child reaches adulthood.

3. What is the NPS Vatsalya scheme rate of interest?

This scheme’s rate of interest is not fixed as it offers market-linked returns. Returns are based on the selected investment options and fund performance over time. But the average range is between 9.5% to 10%.

4. What is the best age to start NPS?

Starting early is always beneficial. NPS Vatsalya allows contributions from birth, ensuring long-term compounding benefits. For regular NPS, starting in your early 20s or 30s allows maximum growth before retirement.

Written by Bruhadeeswaran R.

Bruhadeeswaran R. is a B2B content expert with 14+ years of experience, specializing in National Pension System (NPS), PAN, DPI, eSignPro, and Central KYC. As Editor and Lead Content Writer at Protean eGov Technologies, he simplifies complex e-governance topics through engaging blogs, reports, and digital content.