NPS Vatsalya 2026: A simple guide to the government’s pension scheme for children

The NPS Vatsalya scheme is a government-regulated long-term savings and pension plan designed specially for children below the age of 18. The idea behind the scheme is simple: help parents start saving early for their child, build a habit of disciplined investing, and introduce the concept of long-term financial security from a young age. The word “Vatsalya” means parental affection. In this scheme, a parent or legal guardian opens and manages the account, while the child remains the beneficiary. The money is invested through pension funds regulated by the Pension Fund Regulatory and Development Authority (PFRDA), ensuring transparency and safety.

Recently, PFRDA issued updated NPS Vatsalya Scheme Guidelines 2025, which make the scheme more flexible, especially around withdrawals and exit options when the child turns 18.

How the scheme worked earlier

Under the earlier rules, NPS Vatsalya was quite restrictive. The account usually stayed locked in until the child turned 18. At that point, it either moved into a regular NPS account or exited under strict conditions.

If the account was closed at 18:

At least 80% of the savings had to be used to buy an annuity, which pays a pension later in life.

Only 20% could be withdrawn as cash.

Full withdrawal was allowed only if the total savings were ₹2.5 lakh or less.

Partial withdrawals were allowed only after three years, limited to 25% of contributions, and only three times before age 18.

Because of these tight rules, many families felt the scheme worked better as a retirement product than as a practical savings option for children.

What has changed

The new rules keep the core idea intact but make the scheme more usable for families.

Key improvements include:

The minimum contribution has been reduced to ₹250 for both opening and annual investment.

Friends and relatives can contribute to the child’s account as gifts.

There is no maximum limit on contributions.

The scheme is open to Indian residents, NRIs, and Overseas Citizens of India (OCIs) below 18.

These changes make it easier for families across income levels to participate.

How the Money Is Invested: Asset Classes Explained Simply

A key feature of NPS Vatsalya is how the money is invested. Guardians can choose from PFRDA-registered pension funds, and investments are spread across different asset types to balance growth and safety.

The permitted investment limits are:

Equity (shares): 50%–75%
This helps the money grow over the long term.

Government securities: 15%–20%
These are considered safe and stable.

Debt instruments: 10%–30%
These provide steady returns with lower risk.

Short-term debt or money market instruments: up to 10%, once the total scheme corpus crosses ₹5 crore.

These limits ensure the child’s savings grow over time while keeping risk under control.

How to open an NPS Vatsalya Account

To open an account, certain documents are required:

Proof of the child’s date of birth, such as a birth certificate, school certificate, PAN, or passport.

Guardian’s KYC documents, including identity and address proof (Aadhaar, passport, driving licence, voter ID, etc.).

PAN or Form 60 declaration, as required under tax rules.

For NRI or OCI guardians, details of the child’s NRE or NRO bank account are required.

Withdrawals before age 18

Withdrawals are allowed, but only for genuine needs:

Education expenses

Treatment of specified illnesses

Severe disability (above 75%)

Important rules to remember:

Withdrawals are allowed only after three years from account opening.

Maximum withdrawal is 25% of total contributions, not the investment value.

Only two withdrawals are allowed before age 18.

Withdrawals are based on a declaration and subject to KYC completion.

These rules provide a safety net while preventing frequent or unnecessary withdrawals.

Exit and continuation options @18

When the child turns 18, fresh KYC and nominee details must be submitted. After this, the subscriber has three choices:

Continue in NPS Vatsalya for up to three more years.

Transfer the account to a regular NPS (All Citizen Model or another eligible model).

Exit the scheme, subject to corpus size.

On exit:

Up to 80% can be withdrawn as a lump sum.

The remaining 20% must be invested in an annuity.

If the total corpus is below ₹8 lakh, the entire amount can be withdrawn as a lump sum.

If no decision is taken by age 21, the account automatically shifts to a higher-risk investment option, and standard NPS rules apply.

What investors should know

NPS Vatsalya has become a more balanced and practical savings option for children. It combines long-term growth, limited flexibility for real needs, and strong regulatory safeguards. For parents who plan ahead and follow the rules, it can serve as a disciplined way to build financial security for a child’s future—without losing sight of retirement goals.