NPS vs NPS Vatsalya: What are differences? Which can help generate higher corpus? Know here

NPS vs NPS Vatsalya: Finance Minister Nirmala Sitharaman opened the National Pension System (NPS) to minors on Wednesday (September 18, 2024). The retirement scheme is already opened to people in the 18-75 age group. Sitharaman had announced the NPS Vatsalya scheme during her 2024 Budget speech on July 23, 2024. In this write-up, know what are the differences between NPS and NPS Vatsalya and which of the two can help generate a higher corpus for NPS account holders. 

What is NPS Vatsalya?

NPS Vatsalya is the newly launched, extended version of NPS.

In the scheme, parents and guardians can open an NPS Vatsalya account for minors.

Deepak Mohanty, Chairman, PFRDA, said, "The pension scheme for children is being launched. There is a feeling of financial freedom. Parents will be able to take it for their children. The child's account will be converted into NPS as soon as they become an adult and will continue like this along with the job."

One can make a lump sum or monthly investment in the scheme.

In the market-linked scheme, the minimum yearly contribution is Rs 1,000. 

The account will be converted into a normal NPS account once the minor turns 18.

They can continue to contribute to their NPS account till 75. 

NPS Vatsalya: Documents required

If one is registering in NPS via Aadhaar card, the documents required for minors are-

• Date of Birth Proof of Minor
• Guardian Signature
• Scanned Copy of Passport (Applicable only for NRI Subscribers)
• Scanned copy of Foreign Address Proof (Applicable only for OCI Subscribers)
• Scanned copy of Bank Proof (Applicable only for NRI/OCI Subscribers) 

What is NPS?

NPS is a retirement scheme where one can contribute on a monthly or lump basis.

The starting age to open an NPS account is 18 years, and one can contribute up to the age of 75 years.

The scheme is market-linked, where an NPS subscriber can choose equity exposure up to 75 per cent as per their age, risk appetite, and retirement goals.

They can select NPS mutual fund schemes as well as debt schemes run by different companies.

All NPS mutual funds track the Nifty 50 index.

At 60 years of age, NPS accountholders can withdraw up to 60 per cent of their retirement corpus.

However, they need to purchase annuity from 40 per cent of their corpus. Return from annuity helps them get a monthly pension. 

NPS pension types

NPS offers 5 types of pensions to its subscribers- annuity for life without return on purchase (ROP), joint life annuity with ROP, joint life annuity without ROP, and family income with ROP.

How will NPS Vatsalya benefit?

Since NPS offers compound growth, NPS Vatsalya account holders will get years of compounding.

After being converted into a full NPS account, the NPS account holder can accumulate a substantial amount by the time they attain the retirement age of 60.

NPS vs NPS Vatsalya: Which can generate higher corpus?

With NPS Vatsalya in place, an account holder can extra years for compounding on reurns compared to normal NPS account holders.

So, the one who is starting an NPS Vatsalya account and converting it into a normal NPS account can generate a much higher corpus compared to the one who is contributing only in a normal NPS account, even the former's monthly contribution is less.