by Namrata Singh, CFP & Chaitali Shah, MA (Economics)

Kisan Vikas Patra (KVP) is a government backed small savings scheme which guarantees to double one’s investment in 10 years and 4 months yielding an annualized return of 6.9%.

India Post introduced Kisan Vikas Patra in 1988 and offered a yield of 13.4% (doubling in 5 years and 6 months) between 1988 and 1998. It was initially launched for the farmers to help them save for the long term.

The scheme was closed in 2011 under recommendations of a committee set up under the supervision of Mr. Shyamala Gopinath citing misuse of the scheme for money laundering. In 2014, Kisan Vikas Patra was relaunched with PAN card proof being mandatory for investments over Rs.50,000 and income source proof for investments exceeding Rs.10 lakh.

The Finance Ministry at the time of relaunch said that “KVP will not only provide safe and secure investment avenues to the small investors but will also help in augmenting the savings rate in the country. The scheme will also safeguard small investors from fraudulent schemes.”

KVP accounts can be opened in Post Offices and in few authorized banks. Online application facility for i-KVP is available with few authorized banks like Bank of Baroda, Union Bank of India, Axis Bank, etc.

ELIGIBILITY

The applicant must be an adult and a resident Indian.

The applicant can apply for Kisan Vikas Patra in their own name or on behalf of a minor.

Trusts are eligible to invest in Kisan Vikas Patra. HUFs (Hindu Undivided Family) and NRIs are not eligible to invest in KVP.

TAXATION

Kisan Vikas Patra does not offer any tax benefits. The interest received is exempt from TDS, but taxable in the hands of the investor on maturity/ withdrawal. For someone at the 30% tax bracket, the tax adjusted yield for KVP is 4.83%.

An investor under lower tax brackets and who has a low risk appetite can consider investing in KVP. Before investing in KVP, one must look at the features of Public Provident Fund with EEE tax benefits and higher rate of return.

_________________________________________________________________________

Namrata Singh is a Certified Financial Planner with more than 14 years of experience in banking and wealth management. (namrata@asinvestment.in)

Chaitali Shah, MCom & MA (Economics) was a Financial Economics – Faculty at Wilson College, Mumbai (chaitali_s@hotmail.com)

(Please note all views are personal)