NPS Vatsalya Calculator: From starting monthly contribution of Rs 3,333 to Rs 61 crore retirement corpus and Rs 13.74 lakh monthly pension; know how it can work
NPS Vatsalya: After the introduction of NPS Vatsalya, National Pension System (NPS) is open to subscribers aged 0-75. NPS Vatsalya is specific to the 0-18 years of age group. A small monthly contribution in the scheme can create a large retirement corpus for your child because of the power of compounding.
NPS Vatsalya: National Pension System (NPS) opened to minors for the first time this year. NPS is a market-linked retirement scheme where the subscriber can select equity exposure to create their retirement corpus through various NPS investment types. If one starts an NPS Vatsalya account for a newborn, continues monthly contributions till the minor turns 18, converts this account into a full NPS account, and lets contributions continue till the account holder turns 60, a sizeable retirement corpus can be created with a small monthly contribution. In this write-up, know how with a starting monthly contribution of Rs 3,333 that is topped up by 5 per cent every year, one can create over Rs 60 crore corpus in 60 years.
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(Disclaimer: These are projections. Actual corpus created can be different. This is not investment advice. Do your own due diligence or consult an expert for retirement planning.)
What is NPS Vatsalya?
NPS Vatsalya is a scheme for minors where their parents/guardians can contribute on their behalf till the minor turns 18 years of age. The account holder in such an arrangement will be the minor.
What is the minimum and maximum contribution for NPS Vatsalya?
The account can be opened with a Rs 1,000 contribution. After that, a parent/guardian needs to deposit at least Rs 1,000 a year. There is no maximum limit. Contributions can be made any number of times.
What will happen to NPS account when minor turns 18?
The account will be transitioned into a normal NPS account after the know your customer (KYC) process of the account holder. It will allow them to make contributions till 75 years of age.
Can NPS Vatsalya corpus be withdrawn?
It can be withdrawn only up to 20 per cent if it is more than Rs 2.50 lakh. With the rest of the 80 per cent amount, the account holder needs to purchase an annuity plan.
If the corpus is less than Rs 2.50 lakh, it can be withdrawn fully.
What are investment choices for NPS Vatsalya account holders?
The guardian can choose either of the 3 investment options for their minors.
Default Choice
The Moderate Life Cycle Fund (LC-50), which allocates 50 per cent of the investment to equity.
Auto Choice
Under the Auto Choice option, guardians can select from three Lifecycle Funds based on their risk tolerance. The Aggressive LC-75 allocates up to 75 per cent of the investment in equity, suitable for those with a higher risk appetite. The Moderate LC50 allocates 50 per cent in equity, offering a balanced approach. For those seeking a more conservative strategy, the Conservative LC-25 allocates 25 per cent in equity, minimising risk while still providing growth potential.
Active Choice
Under the Active Choice option, guardians have full control over how they allocate funds across four asset classes. They can invest up to 75 per cent in equity for higher growth potential, up to 100 per cent in corporate debt for stability, up to 100 per cent in government securities for safety, and up to 5 per cent in alternate assets for diversification.
This option allows guardians to tailor the investment strategy based on their financial goals and risk preferences.
NPS Vatsalya calculations for Rs 61 cr corpus
We are calculating the NPS retirement corpus for a newborn. The starting monthly contribution in the NPS Tier I account will be Rs 3,333. The guardian will increase the monthly investment amount by 5 per cent every year till 18. After that, the amount will be converted into a normal NPS account. The contributor will keep increasing their investment amount by 5 per cent every year till 60 years of age. At that stage, they will withdraw Rs 60 per cent lump sum amount and will purchase an annuity plan from the rest of the 40 per cent amount.
What will be mode of choice and expected return from investments?
We are picking Active Choice with 75 per cent investment in equity. As per the NPS Trust, the projected annualised return in that situation will be 12.32 per cent. The expected return from equity is 6.75 per cent.
What will be total investment by 60 years of age?
By 60, the total investment will be Rs 1,41,41,934.
What will be retirement corpus?
The estimated retirement corpus at 60 years of age will be Rs 61,04,27,313.
How much lump sum will be withdrawn?
At 60 per cent withdrawal, the estimated withdrawn lump sum at 60 years of age will be Rs 36,62,56,388.
What will be annuity amount?
At 40 per cent of the total corpus, the estimated annuity amount will be Rs 24,41,70,925.
What will be monthly pension?
The estimated monthly pension at 6.75 per cent return will be Rs 13,73,461.