The Government of India recently introduced the NPS Vatsalya scheme, a promising avenue for parents to secure their children’s financial future. This scheme allows parents to open National Pension System (NPS) accounts for their children under the age of 18. By making regular contributions, parents can build a substantial corpus that can be used for their child’s education, marriage, or other significant life goals.
Understanding NPS Vatsalya
How does it work
To start, parents need to make an initial deposit of at least ₹1,000. There’s no upper limit on subsequent contributions, allowing for flexibility in saving. Once the child turns 18, they can choose to either withdraw the entire amount or continue investing it till the age of 60.
Potential Returns
The beauty of NPS Vatsalya lies in its potential for higher returns. By investing in a mix of equity and debt funds, you can aim for significant growth over the long term. For instance, investing ₹10,000 annually for 18 years with an assumed 10% annual return can yield a corpus of over ₹2.75 crore at the age of 60.
Public Provident Fund
Public Provident Fund (PPF) is another popular savings scheme, especially for long-term goals. It offers a fixed interest rate, currently at 7.1% per annum, providing a stable and predictable return.
How PPF Works
To open a PPF account, you need a minimum initial deposit of ₹500. You can contribute up to ₹1.5 lakh annually. After 15 years, the account matures, but you can extend it in blocks of five years.
Potential Returns
If you consistently invest ₹1.5 lakh annually for 25 years, you can accumulate over ₹1 crore at a 7.1% interest rate.
Which One is Right for You
The best scheme for your child depends on your financial goals, risk tolerance, and investment horizon. If you’re looking for higher potential returns and are comfortable with some market volatility, NPS Vatsalya could be a good option. For a steady and reliable investment with guaranteed returns, PPF is a solid choice.