The concept of market-linked pension and lump sum payment at the age of 60 has been popularised in India by National Pension System or NPS. NPS was introduced in India on the first day of 2004. However, it was thrown open to the general public in 2008.
The biggest modification to the scheme came in September this year when NPS Vatsalya was rolled out by Union Finance Minister Nirmala Sitharaman. She had promised in the Union budget presented on July 23 that this extension would be launched shortly.
Invest only Rs 10k a year
According to a calculation by PIB, a NPS Vatsalya account can easily generate an amount in excess of Rs 5 crore with a small annual contribution. Just invest Rs 10,000 a year, which works out to around Rs 834 a month.
Now consider, a parent opening an NPS Vatsalya account in the first year of the child. With this meagre contribution, your kid’s NPS account will amass an amount of Rs 5 lakh when he/she turns 18.
Return in excess of Rs 5 crore, or even Rs 11 crore
Now comes the real surprise. If this person decides to continue investment after becoming an adult, and continues it at the same rate, the amount will zoom to Rs 5.97 crore, considering an annual return of 11.59%.
If the return falls to 10%, an amount of Rs 2.75 crore will be generated. If the person is lucky enough to get an annual return of 12.86%, the corpus will zoom to Rs 11.05 crore when the person turns 60.
Average returns under NPS
By the way, getting these returns are not impossible at all. PIB has stated that 11.59% is the average return under NPS with 50% equity, 30% corporate debt, and 20% investments into G-Secs, while 12.86% is the average returns with a combination of 75% equity, 25% G Sec).
NPS Vatsalya rules
By the way, a NPS Vatsalya account will be converted to a normal NPS account the day the minor turns adult – turns 18. In fact, this is similar to the PPF minor account which turns into a normal PPF account when the kid turns 18.
A Permanent Retirement Account Number, or PRAN, is allotted to a minor NPS account. It tacitly encourages the individual to continue investments into the account so that the impact of compounding turns relatively small and moderate contributions into huge amounts by the time he/she turns 60.
