NPS Vatsalya Scheme: To build a substantial post-retirement fund for your child, it is advisable to start early. Launched recently in September this year by Finance Minister Nirmala Sitharaman, the National Pension System (NPS)-Vatsalya offers a viable solution to parents looking to financially secure their child’s future.

The NPS Vatsalya Scheme, introduced in the Union Budget 2024-25, is specifically tailored to minors and provides flexible contribution and investment choices to parents or legal guardians. This retirement savings scheme will be supervised by the Pension Fund Regulatory Authority of India (PFRDA).

Parents can start investing in the NPS Vatsalya scheme with a minimum monthly contribution of Rs 1,000, with no upper limit. They will manage the account until the child turns 18, at which point ownership of the account will transfer to the child. The account can then be easily converted to a standard NPS account or another non-NPS system. The NPS Vatsalya scheme also allows flexible contributions into the account by giving guardians the choice to choose from a variety of pension funds to manage investments.

The NPS Vatsalya scheme allows Indian citizens to make deposits for their children, which can be withdrawn by the child at the age of 18 years.

The program requires a minimum deposit of Rs 1,000, with an initial opening amount of Rs 1,000. There is no maximum limit on the amount that can be deposited. The program’s interest rate has recently fluctuated between 9.5% and 10%.

NPS Vatsalya Calculator

The NPS Vatsalya program is known for its attractive benefits. By investing just Rs 275 per month, or Rs 3,300 per year, individuals have the opportunity to accumulate a sizeable fund of Rs 1 crore when their child turns 60 and retires.

Long-term investment growth:

> Monthly investment: Rs 275 or Annual investment: Rs 3,300
> Investment duration: 60 years
> Rate of return on investment: 10%
> Total investment over 60 years: Rs 1,98,000

Projected returns:

> By maintaining a disciplined investment strategy, the expected returns can be quite substantial:
> Total return on investment: Rs 98,17,198
> Total corpus at retirement (60 years): Rs 1,00,15,198

Real-time value

When looking at Rs 1 crore today, it may seem like a large amount, but it is crucial to think about its future value. With an assumed annual inflation rate of 6% over the next 60 years, the purchasing power of this sum will decline significantly. Let’s see what the true value of Rs 1 crore will be in six decades. With an annual inflation rate of 6% over the next 60 years, the equivalent value of Rs 1 crore would be around Rs 9.18 lakh in today’s terms.

Formula of the NPS Vatsalya scheme

The formula for calculating a maturity amount under the NPS Vatsalya scheme is A = P (1 + r/n) ^ nt, where:

A: is the amount
P: is the main sum
r: is the interest rate
n: is the number of times the compounds of interest
t: is the number of years

Investment choice

Parents have three types of accounts or investment options to choose from:

Default choice: Choose the Moderate Life Cycle Fund – LC-50 (with 50% equity).
Automatic choice: Parents can choose from life cycle fund options such as Aggressive – LC-75 (with 75% equity), Moderate LC-50 (with 50% equity) or Conservative LC-25 ( with 25% equity).
Active choice: parents have the opportunity to actively allocate their funds between stocks (up to 75%), corporate debts (up to 100%), government securities (up to 100%) and alternative assets (up to 5%).