2 weeks Ago
Union Finance Minister Nirmala Sitharaman has introduced the NPS Vatsalya scheme, which is exclusively meant for young subscribers. NPS Vatsalya is a scheme where parents or guardians can start saving for their minor children and then have options to convert this account to an NPS Tier 1 later. 1) Through Vatsalya NPS you can have a maximum 75% of exposure in equites through Active and Auto choice.
Default choice gives you the option of 50% in equities. The fact that equites tend to give you higher returns over the long run it doesn't give you the chance like mutual funds to be 100% in equities. 2) When the minor reaches the age of 18, the NPS Vatsalya account automatically transitions into a regular NPS account, allowing the young adult to continue managing their pension savings independently.
The purpose is to ensure that the scheme ensures that a substantial retirement corpus is built by the time the child reaches adulthood. However, at the age of 18 you might be more worry about the education than retirement of your child. 3) The good part is it allows withdrawal.
However, the amount is limited to 25% of contribution after a lock-in period of 3 years and is allowed for education, specified illness, and disability. Moreover, maximum three times you can withdraw. So keep in mind that In case of emergency you can withdraw only upto 25% for education or other needs.
4) For a corpus of more than R. 2.5 lakh, 80% of the fund is utilised for the purchase of annuity and 20% can be withdrawn as a lump sum.
Therefore, you won't be able to withdraw a lumpsum amount when the child turns 18 and use for other purposes. The scheme is designed specifically for planning the retirement of your child.For corpus less than or equal to Rs 2.
5 lakh, entire corpus can be withdrawn as a lump sum. 5) NPS is a retirement account. So NPS Vatsalya is saving for the retirement of your child.
But before saving for the retirement of your child you might have other milestones to cover such as child’s education and your own retirement. Think of your child’s retirement only when you have sufficient funds already allocated for your short and long term goals. 6) Lastly, there is currently no clear guidance on the tax benefits specific to NPS Vatsalya.
Experts suggest that the scheme's benefits may be grouped with the regular tax deductions available for NPS contributions under Sections 80C and 80CCD (1B) of the Income Tax Act. However, official clarification is still awaited..
