Building a nest egg from birth: How NPS Vatsalya can secure your child's future

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Subscribe to enjoy similar stories. Finance minister Nirmala Sitharaman on Wednesday launched NPS Vatsalya Yojana to give an early head-start to children to save for retirement. Parents can open an account for their child from birth to up to 17 years of age.

When the child turns 18, the Vatsalya account will convert into a regular NPS account, allowing employer contributions when the child starts working. “NPS has generated very competitive returns since its inception. It has given a compounded annual growth rate (CAGR) of 9.5% to the government sector.

For non-government sector, it is 14% in equity, 9.1% in corporate debt and 8.8% in government securities," Sitharaman said at the launch. NPS was launched in 2004 for government employees and in 2009 for non-government employees. Parents or guardians can open Vatsalya account for their children by providing essential documents such as Know Your Customer, the child’s birth certificate, and proof of identity.

One can open it via banks, pension fund houses or the e-NPS portal. The money will remain locked for the child until he turns 60. He can withdraw 60% of it tax-free after his retirement while 40% will convert into annuities.

Notably, parents’ contribution to NPS Vatsalya will not offer them any tax relief as it is for contribution into regular NPS under section 80-C of the Income Tax Act. So far as partial withdrawals are concerned, up to 25%of the corpus can be withdrawn for specific purposes, including education, medical treatment for certain illnesses, or disabilities. One can withdraw up to a maximum of 3 times during the entire tenure of your NPS account.