NPS vs NPS Vatsalya: How Rs 2,500 monthly contribution for additional 18 years can take your child's retirement corpus from Rs 4 crore to Rs 35.40 crore

NPS is a market-linked retirement scheme where government and private sector employees, self-employed, and other individuals can contribute to generate a retirement corpus. The scheme was started for central government employees in 2004. It was opened to all in 2009.

After opening an NPS account in a bank or at the NPS portal, private and government sector employees can invest through their employer or as individuals, self-employed, and other individuals by themselves. They can deposit a lump sum amount or on a monthly basis. Many private sector apps also provide the facility to invest in NPS.

NPS subscribers can select equity and debt investment options as per their risk appetite, age, and financial goals. At 60 years of age, they get the option to withdraw their corpus by up to a maximum limit of 60 per cent. From the remaining 40 per cent amount, they need to purchase an annuity plan. 

If they want, they can use 100 per cent of their corpus to purchase annuity. If their corpus is less than Rs 2.50 lakh, they can withdraw their corpus completely. After buying an annuity plan. The return from the annuity plan helps one get a monthly pension.

NPS Vatsalya is an extension of the NPS scheme. In NPS Vatsalya, parents/guardians can open the account for their children/minors. The account will be opened in the name of the minor and they will also be given a Permanent Retirement Account Number (PRAN). However, parents will contribute to the account. 

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

Minors can withdraw up to 20 per cent of their corpus and need to purchase an annuity plan from the rest of the 80 per cent amount. They can withdraw their 100 per cent corpus if it is less than Rs 2.50 lakh.

We are taking the assumed annualised NPS return rate of 12.86 per cent in line with PFRDA’s assumptions (75 per cent equity and 25 per cent G-Sec portfolio).
 

In 18 years, at Rs 2,500 a month, the total investment will be Rs 5,40,000, estimated long-term capital gains will be Rs 14,10,265, and the expected amount will be Rs 19,50,265. 

In 42 years, the invested amount at Rs 2,500 a month will be Rs 12,60,000, estimated long-term gains will be Rs 3,86,03,698, and the estimated retirement corpus will be Rs 3,98,63,698.

If one contributes Rs 2,500 monthly in NPS Vatsalya for 18 years and then continues it in NPS till 60 years of age, their total investment will be Rs 18,00,000, their estimated long-term capital gains will be Rs 35,19,52,351, and the expected amount will be Rs 35,37,52,351.