Friday, 27 March 2015

Kisan Vikas Patra (KVP): Features, Benefits & Drawbacks

Kisan Vikas Patra (KVP) scheme was re-launched by the Government very recently (2014). The scheme is mainly targeted at the group who does not have means or access to other financial investment options. The features offered is mostly similar to other Savings Scheme offered by the Government but with some tweaks in the rate of interest, tenure and some other features. The Investment doubles on completion of tenure. Although it does not provide any Income Tax deduction and even the interest earned is Taxable.
It may be an Investment option for individuals who are looking at secured returns on Investment and people looking beyond National Savings Certificate (NSC) and Public Provident Fund (PPF). Please read the comparison in the link below before you decide to Invest.

National Savings Certificate (NSC), Equity Linked Savings Scheme (ELSS), Public Provident Fund (PPF): Compare

In this post I will highlight the features and viability of the Scheme.

Minimum Contribution
Rs 1,000/-
Maximum Contribution
No Limit
Tenure of Investment
112 Months (9years 4months)
Rate of Interest/Return
Tax Liability
Interest earned is Fully Taxable
Investment Risk
Tax Deduction on Investment
Not Applicable
Minimum Lock In Period
30 months (2 years 6 months)

In the chart shown above we can look at some of the important aspects of the schemes. Now let’s look at the Scheme in bit more detail.

Who Can Invest in The Scheme
  • Any Resident Individual for himself or on behalf of a minor;
  • Any Two Resident Individual can also jointly invest in the scheme.
  • A Trust.

Where Can You Purchase

In most of the Post Offices across India it is available. In future, even Nationalized Banks will offer the same.

Documents required to be submitted
  • Individuals will have to conform to the KYC norms. Documents to be submitted are:-
  • Identity Proof (Passport, Pan Card, Driving Licence, Voter ID Card,etc)
  • Address Proof (Telephone & Electric Bill, Passport, Voter ID Card, etc)
  • Passport Size Photo
  • PAN Card is a must in case of Investment above Rs 50,000/-.

Mode of Payment

Payment can be made through Cash, Cheque or even Demand Draft. In case of cheque or demand draft the KVP certificate will be issued on the date of realization of the amount, but for cash payment it will be issued immediately.

Nomination Facility

Nomination Facility is also available for the Individuals who prefer to exercise the option.

Transfer Facility

Option of Transfer of instrument from one post office to another or for that matter branch anywhere in India is also available.

Loan Facility

Loan can be availed from Banks by pledging KVP certificates.

Encashment and Payment on Maturity

KVP Certificates can be encashed from the Post Office/Branch it is issued. If it has been transferred elsewhere then from respective Post Office/Branch it can be encashed. The Maturity Amount will be directly credited to your Post Office Savings a/c or Bank a/c as the case may be.

Loss/Damage of Certificate

In case of Loss, Theft of the Certificate an application along with Indemnity bond and identity slip needs to submitted to the Issuing Post Office/Branch. On successful verification of the documents a duplicate Certificate will be issued.
In case of Destroyed/Mutilated/Defaced certificate, the same should be submitted and after successful verification of validity, fresh certificate will be issued.

Pre Mature Withdrawal

The certificate has a minimum lock in period of 30 months (2years and 6 months) after which pre mature withdrawal is possible and you will be paid according to the table given below.

However, it can also be paid earlier (before end lock in period) in the following circumstances:-
  • Death of the Certificate Holder or any of the holders.
  • On order by Court of Law.
  • Forfeiture by a Pledge being Gazetted Government Officer.
  • Amount Payable on Pre Mature Withdrawal (After 30 months).

                  Withdrawal Period
Amount Payable
2 years 6 months or more but less than 3 years
3 years more but less than 3 years 6 months
3 years 6 months or more but less than 4 years
4 years or more but less than 4 years 6 months
4 years 6 months or more but less than 5 years
5 years or more but less than 5 years 6 months
5 years 6 months or more but less than 6 years
6 years or more but less than 6 years 6 months
6 years 6 months or more but less than 7 years
7 years or more but less than 7 years 6 months
7 years 6 months or more but less than 8 years
8 years or more but but before maturity
On maturity

Tax Implications

No deduction is available on the Investment made in the Scheme. The interest earned is fully taxable. However, No TDS (Tax Deducted at Source) is done if the interest earned is less than Rs 10,000/- in a year.

Maturity Amount

Investment doubles itself on maturity. It means if you invest Rs 1000/- then on completion of  tenure, 112 months (9 years 4 months) you will get Rs 2000/- as maturity amount.

Post Maturity Interest

If the instrument is not redeemed post maturity then the amount will earn simple interest at the rate applicable for Post Office Savings a/c.

Benefits of Investment in the Scheme
  • It assures fixed rate of return on Investment. The investment amount doubles on maturity.
  • The process of Investing in the Scheme is simple and easy.
  • It is one time Investment Scheme, which means you don’t need to regularly deposit in the Scheme.
  • Has a shorter lock in period when compared with PPF and NSC.

Drawbacks of Investment in the Scheme
  • It does not provide any Tax Benefit in anyway.
  • Interest Rate is slightly lower when compared to PPF and NSC IX issue.
  • Scheme does not provide any additional benefits over the other Savings Scheme like PPF and NSC.
  • Better Investments options are available in the market.
  • Banks FD’s provide same benefits or slightly better than KVP.

My Opinion: About Kisan Vikas Patra

KVP is a good instrument for people who don’t have access to other Investment options. But when compared to Investment options like PPF or for that matter even NSC, then I don’t see much merit in this scheme.

So I can recommend it only for people who are looking for safe and secure Investment option apart from Bank FD,PPF and NSC.

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