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Kisan Vikas Patra (KVP) – Should You Invest?

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The once very popular Kisan Vikas Patra or KVP is trending over the net. This is ever since the re-launch of this scheme was announced. People are rushing to the nearest post office branches to grab the scheme as soon as possible. However, is it really worth it? Let us check the features of this scheme:

  • Amount invested under Kisan Vikas Patra (KVP) will double in 8 years 4 months i.e. an annual return of 8.67%.
  • You can buy certificates of KVP only in 4 denominations – Rs. 1000, Rs. 5000, Rs. 10,000 and Rs. 50,000.
  • There is a minimum lock-in of 2 years 6 months for the scheme, before which you cannot withdraw your amount. After the lock-in, you can withdraw in 8 equal instalments.
  • Investment can be made in this scheme through cash, demand draft or cheque.
  • Maturity amount from this scheme is totally exempt from tax. However, the interest amount is fully taxable.
  • PAN card need not be submitted to invest in this scheme. Id proof would be enough.
  • The KVP certificate issued by post office can be used as collateral to obtain loan from banks.

Nothing seems to be special about this scheme apart from being a post office product. There are better products available in post offices such as PPF and NSC. PPF is by far the best product with a long term perspective. It offers a slightly better interest rate than KVP and also better tax benefits too. NSC also has a similar interest rate as KVP, but with better liquidity options of 5 and 10 years.

Also, when compared to bank FDs, interest rate is lower in KVP. Bank deposits currently offer up to 9-9.5% p.a. 5 year FDs also offer tax deduction advantage. Hence, they could be a better option compared to KVP. This scheme may be used by black money holders as the KYC norms are no strict in this scheme. Govt has allowed investment in this scheme with minimum KYC norms since stricter KYC was driving away domestic savings.

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