Unlocking the Potential of NPS Vatsalya for Your Child's Future" – Aakarsh Dalmia, CFPCM
NPS Vatsalya, a newly introduced variant of the National Pension System announced by finance minister in Budget 2024, has opened an interesting option for long term financial planning for children. In a recent conversation with Aakarsh Dalmia, Certified Financial Planner ( CFPCM ), we explored the features, benefits, and mind-blowing potential of this scheme, which allows parents to secure their child's financial future either through a one-time investment or recurring investments.
“NPS Vatsalya is designed specifically to meet long-term financial goals for children. It’s all about creating a financial cushion early on that grows exponentially over time,” said Aakarsh Dalmia. The scheme allows parents or guardians to invest on behalf of their child, starting from birth, with the funds locked in until the child reaches the age of 60.
Key Features of NPS Vatsalya
Aakarsh outlined several key features that make NPS Vatsalya stand out from other financial products:
- Long-Term Horizon: Investments can start at birth, except with options of 4 withdrawals till age 18 years, the funds are locked until the age of 60.
- Flexible Contributions: It requires a minimum annual contribution of Rs 1000 per annum with no maximum limit.
- Compounding Growth: Over the long term, compounding helps turn modest contributions into a significant corpus.
- Diversified Investments: The scheme allocates investments across equities, government securities, and corporate bonds, ensuring a balanced risk profile.
- Partial Withdrawals: While primarily a long-term savings tool, partial withdrawals are allowed for education or medical emergencies, adding flexibility.
Eligibility for NPS Vatsalya
Parents or legal guardians can open an NPS Vatsalya account for a child right from birth. The account is managed by the guardian until the child turns 18, after which the child gains control. “Any Indian citizen, including Non-Resident Indians (NRIs), can invest in this scheme,” Aakarsh Dalmia added.
Past Returns: Steady and Reliable
When asked about past returns, Aakarsh pointed out that NPS, on average, has delivered annual returns ranging from 9% to 12% over the last decade on its different portfolios with equity being one of the assets in it. Equity investments within the NPS portfolio have shown strong performance of about 14% pa over the last 10 years, while government and corporate bonds provide stability.
From ₹11 Lakhs to ₹100 Crores: The Magic of Compounding
Perhaps the most eye-catching aspect of NPS Vatsalya is the potential for incredible wealth accumulation. Aakarsh Dalmia illustrated this through an example of a one-time investment of Rs. 11 lakhs at the time of a child’s birth, compounded at an assumed annual return of 12%. Over a period of 60 years, this investment can grow to Rs. 100 crores approx.
Here is how the numbers break down:
- Initial Investment: Rs. 11,00,000
- Assumed Rate of Return: 12% per annum
- Investment Period: 60 years
- Final Amount: Rs. 98,73,56,627 (Rs. 99 crores approx.)
So, in this case, Rs. 11 lakhs grow into Rs. 98,73,56,627 thanks to the power of compounding working over six decades.
One can also adopt a short-term monthly investment approach to accumulate Rs 100 Crores and it can be achieved by investing Rs 52,000/- per month for 24 months and thereafter leaving the investment for 58 yrs. Aakarsh added. Similarly, a lot of other investment variations based on client’s cashflow can be worked out to achieve this magical figure.
It’s important to note that 12% is an assumed rate of return based on historical NPS Equity portfolio performance. Actual returns could vary, but this example highlights the immense wealth-building potential of long-term investments, especially when started early.
“Compounding is what really makes this scheme so powerful, leading to exponential growth,” Aakarsh emphasized.
Final Thoughts
As more parents become aware of the importance of early financial planning, NPS Vatsalya will quickly emerge as a preferred option for long-term investments. With its ability to turn modest contributions into large sums over time, the scheme offers peace of mind to parents and financial security for children.
“If you start early and stay disciplined, you can achieve unimaginable financial growth,” Aakarsh concluded.
NPS Vatsalya stands as a testament to the power of compound interest and long-term planning, making it an excellent choice for those who want to give their children a secured financial future, even when, they would not be around.
Aakarsh Dalmia can be contacted at 9051355120 or at aakarsh@dalmiafinserv.com
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