Kisan Vikas Patra ( KVP) is a small savings instrument from the Indian Post Office that promises to double your investment in nine years and four months i.e. 112 months. So, if you have invested Rs50,000 in KVP today, it will give you Rs1,00,000 at the end of the tenure.
Launched in 1998, the scheme was initially meant for farmers, who could plan a long-term investment. Back then, the interest rate varied between 8.2 and 8.4 per cent. It was, however, re-launched in 2014 with some changes.
A popular scheme amongst the masses, a government committee formed in 2011 said that it could be used for money-laundering. When the scheme was launched again in 2014, mandatory proof for investments above Rs50,000 became necessary. Proof of source of income was also required for making investments over Rs10 lakh.
Kolkata–based Nirmalya Saha had invested in KVP in 2016 when the interest rate was 8.7 per cent. “I had some extra money lying with me, so I thought, I would put it in somewhere safe,” he said.
Types Of KVP
Three different types of KVPs are available for purchase. It can be a single holder certificate, where an adult can apply for KVP or act as a guardian for a minor. Then there are Joint –A type and Joint- B type certificates. In both the cases, two adults can open the account jointly with a minor as a nominee. However, in Joint A- type, the maturity amount is payable to either of the two individuals or the nominee. On the other hand, in Joint B - type certificate, the same amount is payable to the primary account holder or the nominee.
Minimum Lock-in Period
You can encash your KVP certificate before the maturity period, however, there is a minimum lock-in period of 30 months.
Interest Rates
The rate of interest on KVP is 7.7 compounded annually from the period of October 1, 2018, to December 31, 2018. Before this, the rate was 7.3 per cent. The interest rate depends on the total number of years the holder opts for at the time of purchase. The minimum investment required is Rs1,000 with no maximum limit. However, the investments need to be made in multiples of Rs1,000.
Taxation
Investments in KVP offer no benefit under section 80C. Also the returns are completely taxable. However, tax deducted at source is not applicable on withdrawals after the maturity period.
Loans
Secured loans can be taken against KVP certificates. The rate of interest on such loans is much lower. The amount of the loan will depend on various factors including the number of years that have passed after the KVP certificate was issued.
Relevance
“KVP is an instrument that emotionally appeals to individuals as it touches the common man who wants to double his money irrespective of the time period it takes. As on today, KVP is nothing more than a fixed deposit giving 7.7 per cent interest per annum with taxable returns. Hence, does not have any major advantage,” concluded Chenthil Iyer, Founder and Chief Strategist, Horus Financial Consultants.
anagh@outlookindia.com