NPS Vatsalya: Start early to ensure child's financial security

Excessive investment in it shouldn't compromise marriage and education funding

- SANJAY KUMAR SINGH

To encourage early retirement savings, the government has introduced NPS Vatsalya, a new initiative under the National Pension System (NPS). This scheme allows parents or guardians to start building a retirement fund for their children from infancy. When the child turns 18, this account will morph into an NPS tier 1 (All Citizens model) account.

Key features

As with NPS for adults, investors will have access to a variety of investment options. "The option to invest through auto choice or active choice can be utilised here," says Kurian Jose, chief executive officer (CEO), Tata Pension Management.

All the asset classes available in NPS for adults will be offered. "The guardian will be able to choose between equity, corporate debt, government securities, and alternative investments," says Rajesh Khandagale, head-NPS, KFin Technologies.

The guardian can also select any one of the pension funds registered with the Pension Fund Regulatory and Development Authority (PFRDA).

The main difference lies in the account's operation. "Until the child reaches the age of 18, NPS Vatsalya requires a guardian to manage it," says Khandagale.

NPS for adults offers both tier 1 and tier 2 accounts. "NPS Vatsalya offers only the tier 1 account," says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors.

Benefit from long-term compounding