What​‍​‌‍​‍‌​‍​‌‍​‍‌ is the NPS Vatsalya scheme? A simple guide for parents

If you are a parent thinking about how to set aside money for your child's future, the NPS Vatsalya scheme would be a good option for you to consider. It is an uncomplicated way to save small amounts of money that can later, by the effect of the compounding, become a considerable sum.

What is NPS Vatsalya?

NPS Vatsalya is a non-contributory special pension scheme meant for minors and is the first step in financial planning for children. The account is in the name of a parent or guardian, and they manage it till the minor becomes an adult. Accounts of children who turn 18 are converted into regular NPS accounts, which can be operated by the new account holder.

This program not only motivates children to save money from their pocket but also makes finance management an easy task for them, thus, giving them a good financial start in life. Besides, the parent gets some tax benefits as well, which is always a plus.

How Does It Work?

• The beginning is always modest, and so are the first deposits, which are usually around Rs. 1,000 or as per the norms.
• You may add an amount every month or at a time of your choice.
• There is no upper limit set on savings - you may do as much as you want, as long as it is within your means.
• The money is invested, thus it grows gradually.
• On turning 18, this account will be a regular NPS account that the child can operate.

Why Parents Like It: Quick Benefits

• The earlier the better: children are taught the value of saving from a young age
• The building of a retirement fund goes on for years and years
• The plan provides flexibility in making deposits to accommodate the budget constraints of the client
• It allows tax benefits for the parents
• The process of handing down the account to your child is simple

Here’s a Simple Example

Let’s say that you make up your mind to put aside Rs. 5,000 each month for the next 20 years. Then with the help of the interest and compounding, not only the money you save will be doubled but also more than that. It is quite similar to planting a seed that will later on become a tree. The earlier the better!

What Goes On When Your Child Is 18?

Upon attainment of 18 years of age, the minor account is converted in a normal NPS account that is accessible only by the child and under his/her name. From then on, they are free to decide what to do with the account, either continuing with savings or retirement planning or any other alternative.

Conclusion 

Utilizing the NPS Vatsalya scheme is one of the smartest and simplest methods available to parents to help their children manage their finances in the future. The program does small monthly savings turn into a significant amount of money with which the child learns financial literacy at an early age. If you want to give your child a good financial head start, this scheme is definitely worth looking into.