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Tata Capital > Blog > Wealth Services > Is NPS Vatsalya a Good Investment Option?

Wealth Services

Is NPS Vatsalya a Good Investment Option?

Is NPS Vatsalya a Good Investment Option?

Every parent wants to secure their child’s future. Between rising education costs and long-term planning worries, the earlier you start saving, the better. But not all investment options offer the right mix of long-term growth, safety, and purpose. That’s where the NPS Vatsalya scheme stands out. It’s a plan built specifically for your child’s financial future. To learn more about the NPS Vatsalya scheme details and if it’s the right choice for your family, read on.

What is the NPS Vatsalya Scheme?

The NPS Vatsalya scheme is a variant of the National Pension System (NPS) designed specifically for minors.

Under this scheme, legal guardians or parents can open an NPS account in their child’s name and contribute either monthly or annually until the child reaches 18 years of age. The minimum annual contribution required is Rs 1,000, with no upper limit on the amount that can be invested.

This scheme aims to support long-term financial planning for the child’s future.

What are the NPS benefits?

Here’s what makes this scheme attractive for parents:

1. Partial withdrawals for essential needs

After three years of investment, 25% of the contributed amount can be partially withdrawn. This money can only be used for your child’s education or to meet health-related expenses like treatment of illness or disability.

2. Market-based investment allocation

Unlike fixed-interest savings like PPF, the money invested here goes into a mix of equity, debt,  government securities and alternates. This gives it the potential to grow faster over time, although it also depends on market conditions.

3. Flexible options at maturity

Once your child turns 18, they have two options. They can either continue the NPS account for retirement planning or withdraw the amount as a lump sum (lumpSum withdrawal is dependent upon the corpus value at the time the child becomes a major)

4. Tax benefit

In Budget 2025, Union Finance Minister Nirmala Sitharaman announced enhanced tax benefits under the NPS Vatsalya Scheme. The revised NPS Vatsalya tax benefits allow parents to save Rs. 50,000 annually under Section 80CCD(1B), in addition to the Rs. 1.5 lakh limit under Section 80C. This dual deduction makes it a top tax-saving instrument for long-term wealth creation.

How does it Compare to Other Investment Options?

Here’s a simple comparison with similar long-term child investment options:

FeatureNPS Vatsalya SchemeSukanya Samriddhi Yojana (SSY)Public Provident Fund (PPF)
TenureUntil the child turns 60Until the child turns 21 (or marriage)15 years
Minimum investmentRs 1,000 per yearRs 250 per yearRs 500 per year
Maximum investmentNo limitRs 1.5 lakh per yearRs 1.5 lakh per year
Investment allocationUp to 75% in equity100% debt100% debt
Partial withdrawalsUp to 25% after three yearsUp to 50% after the child turns 18 or finishes 10th gradeUp to 50% of the balance after 4 years
TaxLumpsum withdrawal is Tax-free; Annuity after maturity is taxableTax-freeTax-free
Tax benefitsParents can claim an additional Rs. 50,000 deduction per annum over and above the Rs. 1.5 lakh limit for NPS Vatsalya Scheme contributionsContributions up to Rs 1.5 lakh per annum are tax-deductible under Section 80C of the Income Tax ActContributions up to Rs 1.5 lakh per annum are tax-deductible under Section 80C of the Income Tax Act

So, is it the right choice?

Well, the answer depends on your current financial planning. If you’ve already secured funds for your child’s education, marriage, and your own retirement, the NPS Vatsalya scheme can be a useful way to build long-term savings. However, if you’re still working towards these key milestones, you may benefit more from flexible investment options like equity funds that offer easier access and higher growth potential.

If you’re unsure where to begin, Tata Capital Wealth can help. From choosing the right savings plan to building a financial strategy around your child’s dreams, our expert advisors offer tailored solutions for every family’s needs.

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FAQs

Is NPS Vatsalya a good investment?

NPS Vatsalya is a good investment for parents looking to secure their child’s future with a long-term pension plan that benefits from market-linked growth.

What happens to NPS Vatsalya after 18 years?

Once the child turns 18, the account transfers to NPS Tier-I. Additionally, up to 25% of contributions can be withdrawn for education or health needs, up to three times.

Which is better, NPS Vatsalya or Sukanya Samriddhi?

NPS Vatsalya provides market-linked returns for long-term retirement planning, while Sukanya Samriddhi offers guaranteed returns, making each suitable for different financial objectives.

When did the Mission Vatsalya scheme start?

Mission Vatsalya started in 2009-10, focusing on the welfare and rehabilitation of children, building on the previous Child Protection Services (CPS) scheme.

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