Outlook Money
NPS Vatsalya is a long-term savings strategy that allows parents to set up National Pension System (NPS) accounts for their minor children. Investments can be made until the child turns 18, at which point the account is transferred to them. Here are six important factors to consider before investing in NPS Vatsalya:
The longer you invest, the more your money can grow through compounding. NPS Vatsalya offers a longer investment horizon, which can enhance growth potential.
NPS Vatsalya can help youngsters develop good money habits, thus increasing their future financial security.
NPS Vatsalya allows for three withdrawals before it becomes a regular NPS account, with an additional three partial withdrawals allowed thereafter.
If the child doesn't want to continue with NPS upon attaining 18 years of age, and if the corpus exceeds Rs. 2.5 lakh, only 20 per cent of it can be withdrawn. The balance has to be used for buying annuity. If the corpus is less than 2.5 lakh, it can be withdrawn in lump sum.
At present, there is no clear guidance on tax benefits for this scheme. However, annuity income is taxable.
Other government schemes, such as Public Provident Fund (PPF) and Sukanya Samriddhi Yojana (SSY) have shorter lock-in periods.