Kisan Vikas Patra: Know all about the small savings scheme
Kisan Vikas Patra (KVP), the small savings scheme that was terminated in the year 2011, has been re-launched by the incumbent National Democratic Alliance (NDA) government. Finance Minister Arun Jaitley re-introduced the scheme on November 18.
The financial product was first launched on April 1, 1988 for the first time. The paper was then launched with a maturity of five years and six months.
The purpose behind the launching of scheme then was to offer a saving alternative to those people who don’t use savings scheme to park the surplus cash and rather invest in gold and silver.
Learning about KVP
KVP is a fixed-income, long-term and risk-free government run financial product. In order to invest in the scheme, minimum investment amount is now fixed at Rs 1,000. There is no maximum limit. Investment can be made in the denominations of Rs.1,000, Rs.5,000, Rs.10,000 and Rs.50,000. In order to invest, say, Rs 60,000 you will have to invest in combination of, say, Rs eight years and seven months. At present, the maturity tenor has been fixed at eight years and seven months. The investment made in the scheme doubles in 100 months.
Are there any tax benefits?
KVP doesn’t provide any tax benefits. You can only withdraw prematurely once the lock-in period of 2 years and six months is over, but conditions apply. Also, in case of death of holder premature withdrawal is allowed.
You can only withdraw a pre-determined account. The interest rate applies for six-month tranches only. This means that if you are withdrawing in, say, four years nine months, interest will be applied to a four-year six-month period.
Can loan be availed against KVP?
Yes, loan can be availed against KVP, but the amount varies from bank to bank.
Investing in product
KVP can purchased as a singly or jointly and can even be bought in the name of a minor child. The product can also be transferred to another person multiple times. You are allowed to transfer from one post office to other. Even nomination can be changed if wished.
The product can be purchased from any post office or an authorized agent. The government may also allow selected branches of nationalized banks to sell KVPs.
Making investment of more than Rs 50,000 requires the buyer to produce Permanent Account Number (PAN) card. The product is not available online.
The returns on KVP come out very attractive since the maturity tenor has been reduced to eight years and four months. The returns are slightly higher at 8.67% now.
Take of eFunds plus
Since the KVP don’t offer any tax-benefits, the product may not attract people highest tax bracket of 30.9%, the effective rate of return will be 5.99%.
However, for those, who don’t have access to better financial products and positioned down in the economic spectrum, KVP offers good options.