New Kisan Vikas Patra (KVP)-Can we invest in this?
Govt of India has launched new Kisan Vikas Patra (KVP) last Tuesday, 18th November, 2014. These new KVP comes with 8.7% interest rates. Kisan Vikas Patra was very popular small saving instrument earlier, however, due to some reasons, this was discontinued. Should you invest in new Kisan Vikas Patra Small Saving Scheme? What are its features? How does Kissan Vikas Patra compared with other fixed income options. I have given a comparison of KVP Vs PPF and KVP Vs NSC in this article.
Is KVP a new Small Saving Scheme?
No. These were already launched in 1988 as part of small saving schemes. When it was launched, KVP has a maturity period of 5.5 years and your money was getting doubled by maturity. These were withdrawn in 2011 as these have been misused.
Features of New Kisan Vikas Patra
- This is a popular small savings instrument floated to encourage people to save more. This is targeted for people who are doing small savings especially in rural areas where they might not have bank account.
- Amounted invested in KVP would get doubled in 100 months or 8 Years 4 months.
- Kisan Vikas Patra offers interest rate of 8.7% per annum
- Investors would not get any tax benefit like you get in Public Provident Fund.
- These are available in the denominations of Rs 1000, Rs 5,000, Rs 10,000, Rs 50,000.
- There is no upper limit on investment in KVPs. Means you can invest any amount in Kisan Vikas Patra.
- You can encash these KVP’s, after the lock in period of 2 years and 6 months thereafter you can draw within any block of 6 months.
- Any individual or jointly can purchase them. It can be transferred from one person to another person any number of times. You can also transfer from one post office to another post office anywhere in India.
- Nomination facility available.
- You can pledge these KVP’s as security at any bank to avail loans.
- Currently these are available through post offices, but soon these will be sold by nationalized banks also.
Why to invest in new Kisan Vikas Patra?
- Investors can invest in trusted government schemes, like new Kisan Vikas Patra in India instead of investing in some Ponzi schemes. Your investment is safe in KVP.
- Good interest rates of 8.7% per annum, which is comparable among the small saving schemes.
- Easy liquidity. You can withdraw money after lock-in period of 2.5 years.
- No maximum limit for investment.
Why not to invest in new Kisan Vikas Patra
- Interest rates are low compared with other fixed income options like Bank FD Schemes which offers up to 9% interest rates.
- There are no tax benefits u/s 80C like you get in the NSC or PPF.
- Maturity amount is taxable.
- Post tax returns are less for high tax bracket individuals.
- KYC norms is another procedural barrier (though minimal).
Kisan Vikas Patra Vs Public Provident Fund (KVP Vs PPF)
- Interest rates: KVP and PPF both offers 8.7% interest rates. Hence there is no difference.
- Maturity period: PPF account should be opened for 15 years. KVP on the other hand has a maturity period of 8 Years 4 months (100 months). Hence, if you want to invest for a shorter period, you can consider KVP.
- Withdrawal before maturity: In PPF you can have partial withdrawals up to 50% after 6 years of opening the PPF account. In case of KVP, you can withdraw the entire amount after lock-in period of 2.5 Years. Hence KVP scores high in terms of liquidity.
- Tax benefits u/s 80C: Any amount invested in PPF upto Rs 1.5 L is eligible for tax benefit u/s 80C (which has a maximum limit of Rs 1.5 L from this financial year). On the other hand, if you invest in KVP, you cannot get any tax benefit u/s 80C.
- Taxation of Maturity amount: In case of PPF, the maturity amount is tax free. On the other hand, interest received on KVP is taxable. You need to add this to your taxable income every year and pay income tax. Post tax returns for high tax bracket individuals would be very low in KVP.
Kisan Vikas Patra Vs National Saving Certificate (KVP Vs NSC)
- Interest rates: KVP and NSC (10 Yrs), both offers 8.7% interest rates. Hence there is no difference. NSC for 5 years offers 8.5% interest rate only.
- Maturity period: NSC is available for 5 year period and 10 year period. KVP on the other hand has a maturity period of 8 Years 4 months (100 months).
- Withdrawal before maturity: You cannot withdraw NSC before maturity. In case of KVP, you can withdraw the entire amount after lock-in period of 2.5 Years. Means, KVP scores high in liquidity point of view.
- Tax benefits u/s 80C: Any amount invested in NSC upto Rs 1.5 L is eligible for tax benefit u/s 80C. On the other hand, if you invest in KVP, you cannot get any tax benefit u/s 80C. If you are looking for tax benefit, you should opt for NSC.
- Taxation of Maturity amount: Both for NSC and KVP, interest amount are taxable. Interest for that year need to be clubbed with your taxable income and pay income tax. However, for NSC, while you show interest as income, you can show this amount in 80C rebate too. If you have not exhausted 80C completely, by showing this way (both as income as well as 80C deduction), you are actually not paying any income tax on NSC interest.
Quick comparision of features between KVP Vs PPF Vs NSC is given below
Conclusion: Many investors disappointed with the features of Kisan Vikas Patra. I have seen that the non availability of tax benefits is the biggest drawback of this KVP. Govt. of India should reconsider this request and should modify some of the features of KVP. Otherwise, this would be still unattractive.
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Kisan Vikas Patra (KVP)