NPS Vatsalya 2026: PFRDA sets new rules on withdrawals, exits and asset allocation

The Pension Fund Regulatory and Development Authority (PFRDA) has issued new guidelines for the NPS Vatsalya scheme, clarifying the conditions around investments, withdrawals, and exit procedures for accounts opened in the name of minors. Guardians must follow these directions, which detail how pension wealth may be managed, accessed, and exited or continued as the beneficiary reaches adulthood. The clarifications aim to offer transparency and flexibility, ensuring contributions serve the welfare and long-term security of minors enrolled under the scheme.

A key aspect of the NPS Vatsalya guidelines is the permitted asset classes and investment limits. Guardians can choose from several pension funds registered with PFRDA, with allocations capped by category:

- Government securities and related investments: 15%–20%- Debt instruments: 10%–30%- Short-term debt or money market instruments: up to 10% (once the scheme corpus exceeds Rs 5 crore)- Equity-related investments: 50%–75%

These limits are designed to balance growth with safety for long-term savings.

NPS Vatsalya account

Opening an NPS Vatsalya account requires specific documentation. The minor’s date of birth must be supported by approved documents such as a birth certificate, school leaving certificate, matriculation certificate, PAN, or passport. KYC requirements for the guardian include proof of identity and address (Aadhaar, driving licence, passport, voter ID, NREGA job card, or National Population Register documents), plus a PAN or Form 60 declaration as per Rule 114B. If the guardian is an Overseas Citizen of India (OCI) or a Non-Resident Indian (NRI), the minor’s sole or joint NRE/NRO bank account details are required.

Withdrawals till age 18

Withdrawal regulations under the scheme are clearly defined. Partial withdrawals are permitted for specific needs, such as the minor’s education, treatment for specified illnesses, or if the minor suffers a disability over 75%. These withdrawals are allowed only after a minimum of three years from account opening, and the maximum amount is capped at 25% of contributions (excluding returns). The withdrawal facility is available on a declaration basis, subject to KYC completion.

Guardians or subscribers may make up to two partial withdrawals before the subscriber turns 18. After attaining majority and completing KYC, the subscriber can make two more partial withdrawals between ages 18 and 21. These provisions help ensure funds are available for genuine needs throughout the subscriber’s youth, with safeguards against misuse.

Exit and continuation options

Exit and continuation options are provided when the beneficiary turns 18. Subscribers may continue in the NPS Vatsalya scheme for up to three more years, provided fresh KYC and nominee details are submitted. Alternatively, the account can be transferred to the All Citizen Model or another applicable NPS model, or exited based on the accumulated corpus. Withdrawals are restricted until KYC procedures are completed, but investments continue to earn returns during this time.

Upon exit, subscribers can take up to 80% of the accumulated corpus as a lump sum, with the remainder invested in an annuity plan from an approved Annuity Service Provider (ASP). If the total corpus is less than Rs 8 lakh, the entire amount may be withdrawn as a lump sum. These provisions offer flexibility at maturity, catering to different financial needs.

According to the official circular: "PFRDA, in supersession of circular no. PFRDA/2024/16/PDES/01 dated 18th of September, 2024, hereby issues ‘NPS Vatsalya Scheme Guidelines 2025’. The guidelines shall come into effect from the date notified by the authority after building the necessary system capabilities." This underscores the regulator’s commitment to enhancing the operational framework of pension schemes for minors.