Investing In Kisan Vikas Patra (KVP): Should You Invest?
Kisan Vikas Patra (KVP) is a saving certificate scheme re-introduced by the Government in 2014, offering guaranteed return on investment. The interest rate on the KVP is declared on quarterly basis. Kisan Vikas Patra (KVP) along with National Savings Certificate (NSC) and Public Provident Fund (PPF) are some of the popular Small Savings Schemes offering guaranteed returns on investment. Individuals may be lured to invest in Kisan Vikas Patra (KVP) as it offers guaranteed returns. However, investing in Kisan Vikas Patra (KVP) may not be an ideal option for many.
In my previous article, I had discussed the Kisan Vikas Patra in details. Link shared below.
Although, Kisan Vikas Patra (KVP) offers guaranteed returns, but should you invest in KVP?
Let’s find out…..
About Investing in Kisan Vikas Patra (KVP)
Kisan Vikas Patra (KVP) is guaranteed Savings Certificate Scheme which was re-introduced in 2014. The scheme was initially introduced in 1988 and continued till 2011, before being discontinued on recommendation of the respective Committee. The KVP certificate is issued from the Post Office and even Nationalized Banks. The maturity proceed is credited to the respective Post Office/Bank Savings Account of the KVP Certificate holder on completion of the tenure.
The scheme is one time investment plan which offers to double the money in 9 years and 4 months (112 months, depending on the prevailing interest rate). The interest offered on the deposit is declared on quarterly basis by the Government. Currently for the quarter ending 31st December,’18, the interest rate offered is 7.7%.
Minimum investment amount in the KVP is of Rs 1,000/-, certificates is also available in denomination of Rs 5,000/-, 10,000/-, 25,000/- and Rs 50,000/-. There is no restriction on the maximum amount one may invest in the scheme.
Advantages of Investing in Kisan Vikas Patra (KVP)
#Guaranteed Return on the Investment makes it a popular savings scheme among the risk averse Investors.
#The investment is risk free, interest rate is not directly impacted by the volatility in the Capital Market, unlike Mutual Funds.
#KVP Certificates is accepted as collaterals for issuance of loans. Thus, Individuals in need of loans may avail the same on production of KVP Certificates.
#Although, the maturity period of KVP Certificate is 9 years and 04 months. The certificate may be surrendered on completion of just 2 years and 6 months (30 months).
Shortcomings of Investing in Kisan Vikas Patra (KVP)
#Small Savings Scheme offering higher return along with tax benefits is available to the individuals for both long and short term.
#No income tax benefit on investment. Interest earned on Investment is fully taxable.
#Rate of Return is reviewed quarterly, so the fluctuation in interest rate always exists.
#Interest earned on KVP may not be able to beat the inflation rates.
#Availability of alternatives, such as Equity Oriented Mutual Funds is not only tax efficient but also offers better returns on investment.
Should You Invest in Kisan Vikas Patra (KVP)???
Individual investing for tax benefits, may invest in PPF, NSC, Equity Oriented Mutual Funds which could potentially offer higher returns along with tax benefits.
Kisan Vikas Patra is ideal for conservative investors who do not have option to invest to in PPF, NSC, Bonds or Equity Mutual Funds.
In my opinion, since KVP is not offering any tax benefit and return is less when compared to PPF and NSC, one should look to invest in other viable investment instruments. Individuals may diversify their investment in Public Provident Fund (PPF), Equity Linked Savings Schemes (Equity Oriented Mutual Funds), Debt Mutual Funds, Bonds, etc. This would not only help to mitigate risk but also lend balance to the portfolio, along with opportunity to maximize returns.
This article is for informational purpose only. Readers are advised to research further to have more clarity on the topic. It is very important to do your own analysis and consult your Financial Advisor before making any investment based decision.