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NPS Vatsalya Scheme revamped: New rules aim to strengthen long-term financial protection for children
According to the new rules, up to 75 per cent of the amount invested in NPS Vatsalya can be allocated to equities (the stock market).
In a fresh development related to the NPS Vatsalya scheme launched for children, the Pension Fund Regulatory and Development Authority (PFRDA) has issued new and important guidelines. These changes are aimed at making the scheme more flexible, transparent, and beneficial for families, providing investors with relief when needed, and ensuring better long-term returns.
For those unaware, the government rolled out the NPS Vatsalya in the 2024-25 budget, which is a pension scheme specifically designed for minor children. The scheme gives the option to parents or guardians to invest in this scheme in their child's name to provide them with financial security and pension benefits in the future.
Under the scheme officially launched on September 18, 2024, investments are continued until the child reaches 18 years of age. Later, these children have the option to continue the account or choose other alternatives.
Up to 75 per cent of the amount can be allocated to equities
According to the new rules, up to 75 per cent of the amount invested in NPS Vatsalya can be allocated to equities (the stock market). This step will enhance the chances of better potential returns. While traditional pension schemes have been known for the problem of low returns, the increased investment in equities will help build a strong fund for the child's future.
Once five years of the investment cycle are completed, guardians get the option to make partial withdrawals for needs, including the child's education, serious illness, or medical treatment.
Withdrawal of up to 25% of the accumulated contribution
The new rules allow for a withdrawal of up to 25 per cent of the total accumulated contribution in three instalments. This makes the scheme helpful not only for retirement but also for meeting temporary needs.
As the child turns 18, he/she will have options such as continuing the account for three more years, transferring it to a regular NPS account, or withdrawing the amount.
Once the scheme matures, up to 80 per cent of the accumulated corpus can be withdrawn as a lump sum, while the remaining 20 per cent must be used to purchase an annuity. However, if the total accumulated amount is less than Rs 8 lakh, the entire corpus can be withdrawn in one go.