The NPS Vatsalya scheme has been designed specifically for minors to nurture the culture of saving from an early age, introduce minors to financial literacy and financial planning, and strengthen the concept of long-term financial security.
Vatsalya (meaning parental affection) is a pension account for minors, opened and run by a parent or legal guardian. The child is the beneficiary.
The new framework, issued under a Pension Fund Regulatory and Development Authority (PFRDA) circular ( recently, eases access at key stages, especially at 18 years of age, and tightens the rulebook on partial withdrawals. Here are the main points:
Then and now
Earlier, NPS Vatsalya largely stayed untouched until 18, when it shifted into NPS Tier I under the All Citizen model, unless the subscriber chose to exit. Exit at 18 was tight. At least 80 per cent had to be used to buy an annuity (turns lump sum into regular pension income). This left only up to a fifth of corpus as lump sum. Full withdrawal was allowed only if corpus was ₹2.5 lakh or less or annuity was unavailable. The minimum annual contribution was ₹1,000. Partial withdrawals were allowed after three years. They were capped at 25 per cent of contributions and limited to three withdrawals before 18. Thus, the design, arguably, fit better as a retirement starter than as a flexible corpus.
So, what has changed now? The new guidelines keep the core identity intact. It remains a minor’s NPS account opened and operated by the guardian. It is available to all Indian citizens aged below 18. Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) under 18 can join. Under the new guidelines, minimum contribution drops to ₹250 for opening and for annual contribution. Relatives and friends can also gift contributions into the child’s account. The guidelines do not specify an upper cap on contributions. Partial withdrawals are allowed only after three years, capped at 25 per cent of contributions, and only for education, treatment of specified illnesses, or disability above 75 per cent. They are limited to two withdrawals till 18 and two more between 18 and 21, after post-18 KYC.
Exit rules at 18 are the main change. Once the subscriber turns 18 and completes the required verification, three routes are available. One, shift the entire accumulated corpus into a regular NPS account under the All Citizen model or another applicable model. Two, exit with up to 80 per cent of the corpus as lumpsum and use the balance to buy an annuity. Three, if the total corpus is below ₹8 lakh, exit with full lumpsum.
There is also an important default rule for inaction. If no option is exercised till 21, the account is deemed to shift into a high-risk variant (higher equity exposure) under the multiple scheme framework and then the regular NPS withdrawal and exit regulations apply.
The guidelines also clarify how the contributions can be invested through the pension fund. Asset limits permit equity at 50 to 75 per cent, government securities at 15 to 20 per cent and debt at 10 to 30 per cent, with money market up to 10 per cent once some conditions are met.
What it all means
The latest reform makes the product easier to place for families that want a long-term market-linked corpus for a child, but also access to genuine needs and a usable exit at adulthood.
The new 80 per cent lumpsum option at 18 is a practical improvement. It makes the product far more usable for funding education or adulthood expenses (like marriage in some cases), while still forcing a small annuity component for larger exits. The full withdrawal option below ₹8 lakh also reduces complexity for smaller accounts.
The partial withdrawal design is a middle path. It provides a safety valve while discouraging frequent use through strict reasons and a low cap linked only to contributions.
There are also some key points to note.
First, partial withdrawals are not a general-purpose facility. The reasons are limited. If the need does not fit education, treatment of specified illnesses, or severe disability, money cannot be withdrawn under the partial withdrawal window.
Second, do not confuse contributions with corpus value. The 25 per cent withdrawal limit is calculated on what you have paid, not on what the investments grew to. So, a ₹2 lakh contribution history means the limit is based on the ₹2 lakh even if the corpus is higher.
Third, after 18, fresh KYC and nominee details are required. Until verified, withdrawals aren’t allowed; if still not done by 21, the account becomes dormant.
Fourth, if no exit option is exercised by 21, the account shifts by default to the higher risk variant and then comes under regular NPS exit and withdrawal rules.
Fifth, clarity is awaited on tax treatment of the larger lumpsum option. This part needs clarity, as at present 60 per cent can be withdrawn tax-free in non-government NPS offerings.
Bottom line
Now, it is easier to justify NPS Vatsalya as a long-term savings account for a child because adulthood access is meaningfully better and partial withdrawals are clearer.
Yet it remains a regulated retirement-first structure with tight reasons for withdrawals, mandatory post-18 verification, and a default outcome if you do not act by 21.
It does feel odd to force an annuity on someone between 18 and 21. But NPS is a pension product, so the annuity is a guardrail to keep part of the corpus tied to long-term retirement income and discourage a full cash-out during adulthood.
For families, the value lies in using it as a disciplined long horizon pool, and treating the 18 transition as a planned compliance and decision event.
Published on January 24, 2026
