Should parents invest in NPS Vatsalya for children? Check how it compares to other schemes Heres what they have to say
The NPS Vatsalya was formally launched last week. Parents can open an NPS account in the name of minor children to save for their retirement. ET Wealth reached out to experts to know whether one should consider this scheme and how it compares with other options. Here’s what they have to say.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} Q.Should a parent invest in the NPS Vatsalya for children?
Preeti Chandrashekhar,India Business Leader, Health and Wealth, Mercer: DEFINITELY. The scheme helps promote savings for children. If the purpose is to put money aside for the child’s retirement and make him understand the power of compounding, then NPS Vatsalya is the way to go.
Rajesh Khandagale,Head, NPS, KFin Technologies: YES. Any parent who wants to inculcate investment discipline in the child right from the beginning should consider NPS Vatsalya. Give them the gift of starting an investment and let them see their money grow.
Vidya Bala,Co-founder, PrimeInvestor.in: NO. If parents are looking at goal-based investing for their children, NPS Vatsalya can be skipped. For a parent, saving for education or other goals would be the priority rather than retirement savings of the child.
Artificial Intelligence(AI)
Java Programming with ChatGPT: Learn using Generative AI
By - Metla Sudha Sekhar, Developer and Lead Instructor
Artificial Intelligence(AI)
Basics of Generative AI : Unveiling Tomorrow's Innovations
By - Metla Sudha Sekhar, Developer and Lead Instructor
Artificial Intelligence(AI)
Generative AI for Dynamic Java Web Applications with ChatGPT
By - Metla Sudha Sekhar, Developer and Lead Instructor
Artificial Intelligence(AI)
Mastering C++ Fundamentals with Generative AI: A Hands-On
By - Metla Sudha Sekhar, Developer and Lead Instructor
Artificial Intelligence(AI)
Master in Python Language Quickly Using the ChatGPT Open AI
By - Metla Sudha Sekhar, Developer and Lead Instructor
Office Productivity
Zero to Hero in Microsoft Excel: Complete Excel guide 2024
By - Metla Sudha Sekhar, Developer and Lead Instructor
Astrology
Vastu Shastra Course
By - Sachenkumar Rai, Vastu Shashtri
Data Science
SQL for Data Science along with Data Analytics and Data Visualization
By - Metla Sudha Sekhar, Developer and Lead Instructor
Web Development
A Comprehensive ASP.NET Core MVC 6 Project Guide for 2024
By - Metla Sudha Sekhar, Developer and Lead Instructor
Office Productivity
Mastering Microsoft Office: Word, Excel, PowerPoint, and 365
By - Metla Sudha Sekhar, Developer and Lead Instructor
Marketing
Digital marketing - Wordpress Website Development
By - Shraddha Somani, Digital Marketing Trainer, Consultant, Strategiest and Subject Matter expert
Web Development
Mastering Full Stack Development: From Frontend to Backend Excellence
By - Metla Sudha Sekhar, Developer and Lead Instructor
Finance
Financial Literacy i.e Lets Crack the Billionaire Code
By - CA Rahul Gupta, CA with 10+ years of domain experience, trainer
Leadership
Business Storytelling Masterclass
By - Ameen Haque, Founder of Storywallahs
Marketing
Future of Marketing & Branding Masterclass
By - Dr. David Aaker, Professor at Haas School of Business
HR
Human Potential and the Future of Employment
By - Lynda Gratton, Co-chair of the World Economic Forum Council on Work, Wages and Job Creation, Professor of Management Practice
Strategy
ESG and Business Sustainability Strategy
By - Vipul Arora, Partner, ESG & Climate Solutions at Sattva Consulting Author I Speaker I Thought Leader
Finance
Financial Reporting and Analytics
By - Dr. C.P. Gupta, Professor: Department of Finance and Business Economics, University of Delhi
Raj Khosla,Managing Director, MyMoneyMantra.com: NO. Given the restriction on withdrawals, it is not the best way to save for kids. One needs money for education when the child is 18 or for marriage when he is around 25. NPS Vatsalya won’t be useful for those goals.
Q.Are there any better alternatives to save for a child?
Preeti Chandrashekhar: NO. Investing in mutual funds requires some understanding of how the markets work. In NPS Vatsalya, there are auto mode options, which decide the asset mix depending on your age. For the uninitiated, this is where they can start their investment journey.
Rajesh Khandagale: NO. Competing products may offer better returns, but the NPS has been consistent over a long period. The pension scheme also offers an inherent discipline. Once you invest, you can’t take the money out till you retire. You remain invested for the long term.
Vidya Bala: YES. Products like Sukanya Samriddhi (for girls), or PPF fulfill the goals to some extent, but with a low risk-return profile. Locking money in annuities or converting into NPS skips the many steps involved in a child’s growth and development in life.
Raj Khosla: MAYBE. Not all investors in mutual funds have earned high returns because investors tend to exit early. NPS Vatsalya is a very long-term product and if the investment is allowed to compound over 40-50 years, even a small amount can grow into an enormous sum at 60.
Q.Is it a good idea to saddle a child with a long-term product?
Preeti Chandrashekhar: WHY NOT? Somebody who is 25 right now cannot imagine himself at age 60. At 60, we are expected to live another 20 years. Nobody knows how longevity will rise in future. It may not be a significant part of your total savings, but some of it can be put in the scheme.
Rajesh Khandagale: MAYBE. It’s up to an individual to make the choice. NPS is a tightly regulated investment option and there is a lot of flexibility. If you miss contributing for a year for any reason, there are no penalties in NPS. It is also a very low-cost product. This is a clear benefit.
Vidya Bala: NO. Young people need more flexible products that allow them to dip into their corpus when they need the money. Simple products like the PPF and more vibrant products like mutual funds allow small savings with the flexibility to withdraw when a need arises.
Raj Khosla: YES. The scheme does offer an exit option to unwilling investors when they turn 18. If the corpus is less than Rs.2.5 lakh, the entire amount can be withdrawn. If it is more than Rs.2.5 lakh, 20% can be withdrawn and the remaining 80% put in an annuity.
Q.How can the scheme be made more attractive for investors?
Preeti Chandrashekhar: MORE FLEXIBILITY. When it was launched, the NPS was very different from what it is today. The pension scheme became more flexible and investor-friendly over the years. We’ll have to wait and watch how the NPS Vatsalya progresses.
Rajesh Khandagale: TAX BENEFITS. There could be the possibility of income-tax benefits being extended to contributions in NPS Vatsalya. The child won’t get any tax benefit, but the guardian would be eligible. However, at this point of time, there is no clarity on this issue.
Vidya Bala: ALLOW WITHDRAWALS. For NPS Vatsalya to be of value to the savers, up to 70-80% should be allowed to be withdrawn at 18 to meet the child’s medium-term needs. The rest can be used to build a retirement kitty through the regular NPS.
Raj Khosla: FULL WITHDRAWAL AT 18. Why not treat the NPS Vatsalya at par with the NPS Tier II, from which the money can be withdrawn when the child turns 18 or for specific purposes like education, marriage or a medical emergency?
NPS VATSALYA FACT SHEET
WHO IS ELIGIBLE?
All citizens below 18 years.
WHO CAN OPEN AN ACCOUNT?
Parent or guardian can open an account in the name of minor.
MINIMUM CONTRIBUTION
Rs.1,000 per year. There is no maximum limit.
TENURE
When child turns 18, it can be converted into a regular NPS Tier I account.
WITHDRAWALS
If corpus at 18 is below Rs.2.5 lakh, it can be withdrawn. Otherwise, only 20% can be withdrawn, 80% put in annuity.
TAXATION
No tax implication when account is converted into regular NPS at 18. Same tax rules as NPS Tier I.
#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
This story originally appeared on: India Times - Author:Faqs of Insurances
