By Ruma Dubey

Kisan Vikas Patra or KVP as it is most popularly known was a must-have investment tool in almost every small household. It was sold through Post Offices across the country and it was very routine to see the single window of KVP always having a serpentine queue with a harassed clerk, handling the certificates while the fan overhead whirred less air and more heat.

The KVP tool was stopped from 30th November 2011and many bemoaned the stoppage of this three decades old small-savings investment scheme. It was the only scheme at that time, which promised to double the money in a few year’s time – that used to be its main USP.

And today the very same KVP has been restarted and its USP remains the same – double your money in 100 months or 8.4 years.  The name ‘Kisan’ does not mean for only farmers; it is open to one and all across India. A quick look at what the KVP offers.

• There is no upper ceiling and investments can be made in denomination of Rs. 1000, Rs. 5,000, Rs. 10,000 and Rs. 50,000.
• No longer a bearer instrument; you can invest in cash but amount on maturity will be deposited in the Post Office Savings account.
• It is transferable multiple times and can be issued in single or joint names.
• It offers no tax benefit and gives an annual yield of 8.7%. So you may very well double your money but will end up paying tax.
• TDS of 10% will be paid on interest earned on KVP; no deduction under 80C
• Neither NRIs nor HUFs can invest in KVP.
• It will be on offer initially through all Post Offices and later through nationalized banks.
• The lock-in period is of 2.6 years after which one can encash the KVP certificates. Post 2.6 years, investor can encash in any block of 6 months on pre-determined maturity value.
• There will be no need of any PAN for investing in KVP.

The KVP was discontinued as it had become a medium to route and park black money. But the restart of the same scheme, especially when there is a hue and cry about black money currently comes as a surprise. Maybe the govt thought that it is better to have that money circulating in the system, rather than remain stashed elsewhere. The fact that it is doing away with PAN very much means that it is a ploy to bring back black money.

Well, if you have black money, this instrument makes great sense but if it’s all white, it does not make too much sense to put money in KVP. Unlike National Savings Certificate (NSC) or PPF, there is no tax benefit, not even 80C and that in itself is a big deterrent. Also, the interest which you earn on KVP will attract tax as it gets classified as ‘Income from other sources’. But at the same time, NSC and PPF gives you tax free interest income.  

NSC is different from KVP in the sense that though its interest rate is slightly lower at 8.5%, it is illiquid – one can prematurely withdraw only in case of death of the account holder, forfeiture by the nominee or in case of court’s order. Investments upto Rs.1 lakh can be claimed under 80C and TDS is not deducted in case of 5-years tenure though it is cut when tenure is 10-years. Maturity period is longer at 10 years. And yes, PAN is a must for NSC.

Thus when one compares NSC and KVP, the former remains is better only on account of tax benefit but KVP is more liquid and probably the safest haven to park black money. PPF scores highest in all aspects as its interest is tax free and one can also claim 80C benefits.

So in that aspect, KVP is not really an attractive instrument and definitely not recommended for those earning all money in white.