NPS Vatsalya Scheme: Invest Rs 10,000 annually, child will get Rs 11 crore on retirement - understand the calculation
NPS Vatsalya Yojana: Vatsalya account can be converted into a regular NPS account when the child turns 18. In some cases, some money can be withdrawn from the NPS Vatsalya account even before the child turns 18.
NPS Vatsalya calculator: NPS Vatsalya Yojana can also help in reducing the burden of financial responsibility of parents in the future.
Modi government has started NPS Vatsalya Yojana with the aim of securing the future of the children of the country. Under this scheme, parents and guardians can invest for the better financial future of their children. In this scheme, parents can open NPS Vatsalya Account in the name of children. National Pension Scheme (NPS) has been expanded through this scheme.
Like NPS, NPS Vatsalya Scheme will also be managed by the Pension Fund Regulatory and Development Authority (PFRDA).
You can exit when the child turns 18
When the child turns 18, the Vatsalya account can be converted into a regular NPS account. At the same time, when the child turns 18, the parents can exit this scheme if they wish. But the condition is that to buy an annuity plan, at least 80% of the maturity amount has to be reinvested and only 20% of the amount can be withdrawn in lump sum.
How much to invest in NPS Vatsalya (NPS Vatsalya investment limit)
In the NPS Vatsalya scheme, parents or guardians have to invest at least Rs 1,000 annually. There is no upper limit on investing in this, they can invest as much as they want in this scheme. Therefore, parents will have the flexibility to start with a small amount and increase the investment amount as their child grows up.
If you want to take advantage of the NPS Vatsalya scheme, then for that, you must be a citizen of India, and your child should be below 18 years of age. It is also necessary that all the parties involved fulfill the KYC requirement.
Benefits of NPS Vatsalya (NPS Vatsalya Benefits)
If we talk about the special benefits of NPS Vatsalya, then this scheme offers long term financial planning and security for your child and also emphasizes on the concept of starting a pension plan early. This saving scheme will also promote the habit of saving and investing among parents.
NPS Vatsalya Yojana can also help in reducing the burden of financial responsibility of parents in future. Because its maturity amount can be used for higher education of their child or starting a business.
NPS Vatsalya Withdrawal
In some cases, some money can be withdrawn from the NPS Vatsalya account before your child turns 18. After three years of enrollment, you can withdraw up to 25% of the total contribution amount, allowing you to withdraw money three times until the child reaches the age of majority. As per PFRDA guidelines, 25% of the amount can be withdrawn for education, treatment of critical illnesses, or in case of more than 75% disability.
When the child turns 18, this account will be converted into a regular NPS account. Therefore, fresh KYC has to be completed within three months. Subscribers can exit NPS, but the condition is that at least 80% of the corpus has to be reinvested in an annuity plan, while 20% can be withdrawn as a lump sum. If the total amount is less than Rs 2.5 lakh, the entire amount can be withdrawn at once.
Create a huge retirement fund for your child with NPS Vatsalya Scheme
Let us know how investing in NPS Vatsalya Scheme can help you in raising a big fund for your child by the time he/she turns 18.
Calculation:
Suppose you invest Rs 1,000 per month under this scheme for your child.
- Investment period: 18 years
- Annualized return: 12.86%
- Thus, total amount invested in 18 years: Rs 2,16,000 (Rs 1,000 per month x 12 months x 18 years)
- Total interest earned on this: Rs 6,32,718
- Total amount at the age of 18: Around Rs 8,48,000
Historical Average Return: This rate of 12.86% represents the historical average since the inception of NPS, assuming a portfolio allocation of 75% in equities and 25% in Government Securities (G-Sec) as of July 19, 2024.
As per NPS Vatsalya rules, 80% of the maturity amount (Rs 6,78,400) must be mandatorily reinvested in the annuity scheme, which means only 20% (Rs 1,69,600) can be withdrawn as a lump sum.
This way you will get Rs 11 crore on retirement
Here's how an investment of Rs 10,000 every year for 18 years can grow under different Rates of Return (RoR) (Source: SBI Pension Fund website)
- At age 18: With a RoR of 10%, the deposit amount will be around Rs 5 lakh.
- At age 60: If the same investment is continued till retirement, the corpus can grow to Rs 2.75 crore at 10% RoR and Rs 5.97 crore at a historical average return of 11.59%, which reflects an allocation of 50% equity, 30% corporate debt and 20% government securities as on July 19, 2024.
- With 12.86% RoR, this annual investment of Rs 10,000 will grow to Rs 11.05 crore based on a portfolio allocation of 75% equity and 25% government securities.
(Note that all these calculations are based on historical data and estimates; actual returns may be higher or lower.)
