Kisan Vikas Patra (KVP)

Kisan Vikas Patra (KVP)- An Analysis

Kisan Vikas Patra (KVP) is a government-backed savings scheme that was launched in India to encourage long-term savings among small investors. It is a fixed-income investment option that doubles your money in a predetermined period. Initially, KVP was considered an attractive savings option due to its high-interest rates and low investment amounts.

Over the years, KVP underwent several updates to make it more attractive and accessible to a wider range of investors. Here are some of the significant updates to KVP over the years:

1992: The minimum investment amount for KVP was reduced from Rs. 100 to Rs. 50.

1999: KVP was made transferable from one person to another, making it more flexible and convenient for investors.

2014: The government revamped the KVP scheme and made several changes to make it more attractive. including reduction in lock-in period from 8 years and 7 months to 2 years and 6 months. Additionally, KVP certificates were made available in different denominations to make it accessible to a wider range of investors.

2019: The government allowed premature closure of KVP accounts after three years from the date of purchase.

Is it a good investment ?

If you are a risk-averse investor looking for a government-backed, low-risk savings option, KVP can be a good option. It is always recommended to consult a financial advisor before making any investment decisions.

The benefits of investing in KVP include:

Low risk: KVP is a low-risk investment as it is backed by the Government of India.
Guaranteed returns: KVP provides guaranteed returns on your investment, and the returns are not subject to market risks.
No tax deducted at source: TDS is not deducted on the interest earned from KVP, making it an attractive investment option for those who fall under the higher tax bracket.
Flexibility: KVP is available in denominations of Rs. 1,000, Rs. 5,000, Rs. 10,000, and Rs. 50,000. You can buy as many certificates as you want, and there is no upper limit on investment.
Liquidity: Although KVP has a lock-in period of 2.5 years, premature withdrawals are allowed after one year.

How To Invest in KVP ?

Visit your nearest post office or authorized bank that offers KVP. KVP is available for investment through post offices and select banks such as State Bank of India (SBI), Punjab National Bank (PNB), ICICI Bank, HDFC Bank, and Axis Bank.
Fill out the KVP application form. You will need to provide your personal details such as your name, address, PAN card number, and nominee details.
Decide on the investment amount. The minimum investment amount for KVP is Rs. 1,000, and there is no upper limit on the investment amount.
Make the payment for your investment. You can pay the investment amount in cash, cheque, demand draft or through online transfer, depending on the mode of payment accepted by the post office or bank.
Collect your KVP certificate. The post office or bank will issue you a KVP certificate once the investment is made, and this certificate will be required for any future transactions related to your KVP investment.

Note that KVP has a lock-in period of 2.5 years, after which you can redeem the investment. However, premature withdrawals are also allowed under certain circumstances, subject to applicable rules and conditions.

Returns on investment / Interest Rate

Interest rate on Kisan Vikas Patra (KVP) changes from time to time, and the returns on investment depend on the interest rate prevailing at the time of investment. Here are the interest rates since inception

Time Period of investment	Applicable Interest Rate (%)
1/1989 to 3/2000	12.00
4/2000 to 3/2003	11.00
4/2003 to 3/2004	8.40
4/2004 to 3/2007	8.00
4/2007 to 3/2009	8.40
4/2009 to 3/2013	12.00
4/2013 to 3/2016	8.70
4/2016 to 12/2016	7.80
1/2017 to 6/2017	7.70
7/2017 to 9/2017	7.60
10/2017 to 12/2017	7.50
1/2018 to 12/2018	7.30
1/2019 To 6/2019	7.70
7/2019 to 3/2020	7.60
4/2020 to 9/2022	6.90
10/2022 to 12/2022	7.00
1/2023 onwards	7.20

Maturity

1. Amount of maturity may be repaid to the account holder on an application in Form-2 submitted to the accounts office.

2. The maturity period of the deposit under this Scheme shall be determined on the rate of interest applicable at the time of opening the account.”

Premature closure of account

According to the KVP notification, below are the condisiotns when KVP can be closed prematurely;

(1) The account may be prematurely closed by the account holder by making an application in Form-3 to the accounts office, at any time before maturity under the following circumstances, namely:-

(a) on the death of the account holder in a single account, or any or all the account holders in a joint account;

(b) on forfeiture by a pledgee, being a Gazetted Officer;

(2) On the closure of the account under sub-paragraph (1), principal amount alongwith simple interest calculated at the rate applicable from time to time to Post Office Savings Account for the complete months for which the account has been held, shall be payable.

(3) Notwithstanding anything contained in sub-paragraph (2), if an account is closed any time after the expiry of two years and six months from the date of opening of the account, the amount, inclusive of interest shall be payable.”

Tax benefits

The returns are completely taxable, and the plan is not eligible for tax reductions under Section 80C of the Income tax act. However, withdrawals made after the maturity period are not subject to TDS (Tax Deducted at Source).

Reason why KVP is not considered a good investment today

It is important to note that KVP is a government-backed savings scheme and is considered a safe investment option. However, it may not be the best investment option for those looking for high returns, liquidity, or tax benefits. Thus, We have listed some of the reasons in details why one may not want to consider it as an investment option:

Low returns: The interest rate on KVP is usually lower than that of other fixed-income instruments like fixed deposits (FDs) or debt mutual funds. This means that your returns may not keep pace with inflation, resulting in a loss of purchasing power.
Long lock-in period: The lock-in period for KVP is 2.5 years, which means you cannot withdraw your money before the completion of the lock-in period. If you need liquidity or an emergency arises, you may not be able to access your funds.
Taxation: While KVP does not have TDS deducted on interest earned, the interest earned is taxable. This means that the returns earned on KVP may not be as attractive after tax as compared to other tax-saving instruments.
No compounding: Unlike some other savings instruments, KVP does not offer the benefit of compounding. This means that the interest earned on KVP is not added back to the principal amount, resulting in lower returns.
Limited availability: KVP is only available at post offices, which may not be convenient for some investors.