Is KVP Scheme a Good Investment?

Is KVP Scheme a Good Investment?

There are quite a lot of schemes that have been introduced and successfully established in our country. But most often – we never keep tabs on the schemes that move around, and sometimes we even overlook the schemes that could benefit us. Among so many schemes, let us talk about the Kisan Vikas Patra Scheme in this piece. It is a certificate scheme from the Indian Post Office. Firstly, let us learn more about this.

What is the Kisan Vikas Patra Scheme?

In 1988, the Indian Post had launched the Kisan Vikas Patra. It is a small savings certificate move. The basic goal of the scheme is to instill long-term financial discipline in the Indian population. As to the most recent update from the scheme, the duration is now 124 months (10 years and four months) if you had bought the Certificate between July 1, 2021, and September 30 September 2021. The lowest investment in the scheme is Rs. 1000, but the best part is that there is no maximum bar. 

And if you invest a lump sum right now – you need to get twice as much at the end of the period. Did you know that originally – it was intended for farmers? It was for them to save for the long term – and that is why the name. This would tell you that it is now open to everyone.

To reduce the possibility of money laundering, the government made PAN Card proof mandatory for investments exceeding Rs. 50,000 in 2014. To deposit Rs. 10 lakhs or more, you must provide proof of your income (salary slips, bank statement, ITR document, etc.). 

It is a low-risk savings platform where you can park your money safely for a set length of time. So, buckle up and stay put – you will have to be ready to know more about the Kisan Vikas Patra scheme as we keep going through this article and know all of its benefits.

Now, if you are wondering if this is a good scheme – you will know with the section mentioned below. 

Every coin has two sides – so does this scheme. But, that is a subjective term – whether it is good or bad. So, we are at the pros and cons of the scheme; this will give you a view of whether or not the scheme is meant for you. 

Pros of the KVP Scheme

1) Your returns will always be assured

It would not be like you are investing in a market-connected scheme – and you know your money is coming back to you with increased returns. It is similar to a Fixed deposit but with much more benefits.

2) You can Get a Loan with this Certificate

Do you know that you can apply for a loan with your FD as the collateral? If you did not – you should know that, yes, you can. The same thing applies to the KVP scheme. And with your KVP certificate, you can do the same thing to get a loan.

3) You can nominate

A lot of schemes today do not have the option to be nominated. Now, if you do not know what nomination is – it means that after the death of the subscriber – the money would go to the nominee. In this scheme, you can nominate someone.

4) You can start off with just Rs.1000

You do not need a lump sum amount to start off with the KVP scheme. You can just start with Rs.1000.

5) You can enjoy compounding interest

You have to know that when you have money just sitting in your savings account – the interest for the money is not compounded. With the KVP scheme, you can enjoy interest being compounded annually.

Cons of the KVP Scheme

1) You would not enjoy the pros of 80C

Section 80C allows for a Rs 1,50,000 deduction for investments in selected instruments. Investments in the Kisan Vikas Patra, on the other hand, do not qualify for a Section 80C deduction.

Investments in other instruments in the same category, such as PPF Accounts and National Savings Certificates, are deductible under Section 80C. Investments in 5-year fixed deposits with banks are also deductible under Section 80C.

2) The Interest is Taxed

The interest rate on this specific scheme is 7.3%, which is nearly equivalent to/lower than the interest rates on other instruments in the same category, such as PPF Accounts, National Savings Certificates, and Fixed Deposits, among others. 

Other similar products, on the other hand, provide a plethora of additional benefits that are not available when investing in KVP. The interest on the KVP is taxable under the heading Income from Other Sources. 

3) You will be locked in

The Kisan Vikas Patra has a relatively long lock-in period when compared to standard bank fixed deposits, which can be terminated at any moment with a nominal penalty.

As a result, for the four reasons stated above, it is not advisable to invest in the Kisan Vikas Patra if you have short-term financial goals. An investor should first try to invest in an Account that lets you be invested for the short term. 

Final Takeaway

The scheme would be good for you if you are looking for a risk-free basket and assured returns. This scheme gives you that. Along with that, you can also choose it if you can be invested for the long term.