Should you invest in NPS Vatsalya for children:NPS Vatsalya is a new pension scheme launched for children. Under this scheme, parents can invest for the future of their children, which will be converted into a regular NPS account when the children reach the age of 18. But the question is, should you invest in NPS Vatsalya for your children? Before taking any decision in this regard, it is important to know the pros and cons of this new scheme.
What is NPS Vatsalya?
NPS Vatsalya is a pension scheme designed keeping in mind the future needs of children. Under this scheme, parents or guardians can open an NPS account in the name of their child. This scheme is a way to inculcate the habit of long-term investment in children and secure their pension plans in the future.
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NPS Vatsalya’smajor features
– Minimum annual contribution:Rs 1,000
– Eligibility to open an account: All children below the age of 18 years
– Funds withdrawal rules:After the age of 18, if the corpus is less than Rs 2.5 lakh, the entire amount can be withdrawn. If the corpus is more than Rs 2.5 lakh, then after withdrawing 20% of the amount, the remaining 80% of the amount must be invested for annuity.
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Benefits of NPS Vatsalya
1. Long term investment: NPS Vatsalya is a long-term investment plan that gives parents an opportunity to build a stable future for their children. This can help the child get a large corpus at the time of retirement.
2. Advantage of compounding:The sooner you invest in NPS Vatsalya scheme, the more you will get the benefit of compounding. Even small investments can turn into big returns in the long term.
3. Low risk :NPS Vatsalya is a government regulated scheme, which is considered comparatively safe. Investing through it in a disciplined manner helps in dealing with the fluctuations of the market.
4. Auto mode option: NPS Vatsalya Yojana has an auto mode facility, which decides the asset mix according to the age of the investors. Thus, it is also suitable for those investors who do not have much knowledge about the market.
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Drawbacks of NPS Vatsalya
1. Lack of liquidity:In this scheme, no major withdrawals can be made till the age of 18, which makes it less flexible than other schemes. If you need money for children’s education or marriage, then investing in NPS Vatsalya may not be helpful.
2. Fixed withdrawal rules : Even after the age of 18, if the corpus is more than Rs 2.5 lakh, only 20% of the amount can be withdrawn and the remaining 80% of the fund must be invested in an annuity. This condition makes it less flexible, especially in a situation when spending is needed on children’s education, marriage or other important things.
What are the other better options
If you want to save for your children’s education, marriage or other small and big expenses, then NPS Vatsalya Scheme may not be the best option. Instead, you can choose options like Sukanya Samriddhi Yojana or PPF, which are more flexible and purpose based.
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Comparison with SSY, PPF and Mutual Funds
1. Sukanya Samriddhi Yojana (SSY): If you have a daughter, then Sukanya Samriddhi Yojana is a great option, which comes with a high interest rate and is completely safe.
2. Public Provident Fund (PPF):Public Provident Fund (PPF) is a safe and flexible option where you can easily invest for your child’s future. It also gives good returns for the long term, and there is a facility of partial withdrawal if needed.
3. Mutual Funds:If you are looking for higher returns and want to take a little risk, you can also invest in mutual funds. These schemes offer more flexibility than NPS Vatsalya.
What should you do?
If your goal is to inculcate the habit of investing in children and keep their money safe for a long time, then NPS Vatsalya can be a good option. But if you want to invest for children’s education, marriage or other important stages of their life, then you should consider other plans, which are more suitable for achieving these goals.
(Disclaimer: The purpose of this article is only to provide information, not to recommend investment. Take any investment decision only after consulting your investment advisor.)
