Kisan Vikas Patra (KVP): All You Need To Know
Kisan Vikas Patra (KVP) is a guaranteed return certificate scheme re-introduced in 2014. The scheme is mainly targeted at the Individuals who do not have access to proper banking facilities and financial intermediaries. Another reason for re-introduction of KVP is to dissuade lower income group individuals from falling for any ponzi schemes and losing their hard earned money. The features offered is identical to other Savings Scheme offered by the Government but with tweaks in the rate of interest, tenure and benefits. The Investment doubles on completion of tenure. It must be noted, investment in KVP is not eligible for Income Tax deduction and even the interest earned is Taxable.
Who Can Invest in The Kisan Vikas Patra (KVP)
Any Resident Individual for himself or on behalf of a minor;
Any Two Resident Individual can also jointly invest in the scheme.
Where Can You Purchase
KVP certificate is available from Post Offices across India. KVP may also be purchased from the Nationalized Banks.
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 License, 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 is also available for the Individuals who prefer to exercise the option.
Option of Transfer of instrument from one post office to another or for that matter branch anywhere in India is also available.
Loan can be availed from Banks by pledging KVP certificates.
Encashment and Payment on Maturity
KVP Certificates may be encashed from the Post Office/Branch it is issued. If it has been transferred elsewhere then from respective Post Office/Branch it may 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 or Theft of the Certificate, an application along with Indemnity bond and identity slip needs to be 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 (2 years and 6 months) after which pre mature withdrawal is possible and you will be paid according to the table shared below.
However, pre mature withdrawal (before end lock in period) is also possible 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 for deposit of Rs 1,000/-)
No tax deduction is available on the Investment made in the Scheme. The interest earned is fully taxable. However, Deposit is exempt from TDS at the time of withdrawal.
Investment doubles itself on maturity. It means if one invests Rs 1000/- then on completion of tenure, 112 months (9 years 4 months, as per prevailing interest rate of 7.7% for the Quarter ending 31st Dec,’18) the maturity amount will be Rs 2,000/-.
Post Maturity Interest
If the instrument is not redeemed on maturity, then the amount will earn simple interest at the rate applicable for Post Office Savings a/c.
Benefits of Investment in Kisan Vikas Patra (KVP)
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 one is not required to make regular deposits.
Has a shorter pre-mature withdrawal period when compared with PPF and NSC.
Drawbacks of Investment in Kisan Vikas Patra (KVP)
It does not provide Tax Benefit in anyway.
Interest Rate is marginally lower when compared to PPF and NSC.
Scheme does not provide any additional benefits over the other Savings Scheme like PPF and NSC.
Maturity Period is long when compared to NSC.
Better Investments options are available in the market.
Banks Fixed Deposits (FD’s) provide similar interest rate, on shorter duration term deposits.
My Opinion: About Kisan Vikas Patra (KVP)
KVP is a good instrument for individuals who don’t have access to other Investment options. But when compared to other Guaranteed Investment products like PPF or for that matter even NSC, offer better returns and are tax efficient. Investment in Equity Linked Savings Scheme (ELSS) comes with shorter lock-in period and tax benefits. Furthermore, the return on ELSS is expected to be better than KVP in the long run.
So I recommend it only for Individuals who do not have the option to invest in ELSS, Bonds, PPF or even in NSC.
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.