The government had announced an investment scheme for the future of children in the Union Budget this year . The government introduced the terms and conditions of this scheme in September. The name of this scheme is NPS Vatsalya.
This is a pension scheme that allows parents to invest in the name of their child until the child turns 18 years old. After 18 years, the child becomes an adult. After the child becomes an adult, this scheme will become a regular NPS account. The purpose of this scheme is to create a large fund for the child in the long term. Parents have to invest a minimum of Rs 1,000 annually in this scheme. There is no limit for higher investments.
The purpose of parents saving for their children
If we talk about NPS , since its launch in 2009 (for private sector), this retirement scheme has given good returns. Its equity scheme has given a return (yield) of 14 percent, corporate debt 9.1 percent and government securities 8.8 percent. Now the question is that since NPS is a retirement scheme, do parents need to plan for their child’s retirement? The second question is that parents have many responsibilities including children’s higher education and marriage, so should they (parents) first think about fulfilling these responsibilities or about retirement planning for the child?
Terms and Conditions of NPS Vatsalya
It is true that after completion of three years of NPS account, 25% of the contribution amount is allowed to be withdrawn. In this manner, money can be withdrawn three times till the child turns 18 years old. When the child becomes an adult i.e. 18 years old, a lump sum withdrawal of 20% amount is allowed. The remaining amount will have to be used to buy annuity. The second option is that after the child turns 18, NPS Vatsalya can be continued like a normal NPS scheme.
How beneficial is investment in NPS Vatsalya
In a normal or regular NPS account, the subscriber is allowed to withdraw 60% of the money in lump sum when he turns 60. The remaining 40% of the fund has to be used to buy an annuity. With this annuity, the subscriber gets regular pension after the age of 60. Now the question is that if we talk about the first option, when the child turns 18, he will get 20% of the money in lump sum, the rest will have to be used to buy annuity. This does not seem to help much in meeting the needs related to the child’s education or marriage. If we talk about the second option, then the meaning of retirement investment before the child starts a job is not understood.
Are PPF and Sukanya Samriddhi good options?
The question is, will it be better to invest in PPF or Sukanya Samriddhi for the child’s future as compared to NPS Vatsalya? Experts say that if seen in terms of the responsibilities related to the child’s higher education and marriage, then Sukanya Samriddhi and PPF are better options. However, there is no option of investing in shares in both of these. But, PPF matures in 15 years. Sukanya Samriddhi matures in 21 years. In such a situation, if parents invest in these two schemes, then when the child grows up, they have a good fund to fulfill the responsibilities related to higher education or marriage.
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