The revamped Kisan Vikas Patra: Nothing for taxed investors, but good for the unbanked

On the lines of the concept of making sequels of popular movies, the government also seems to have adopted this concept, by recently re-introducing the once popular post office small savings scheme of Kisan Vikas Patra, which was discontinued in 2011 due to various reasons.

KVP in its previous avatar was quite a popular investment mode for investors across various strata of society. Since then, a lot has changed for retail investors. In that context, the question that’s on every investors mind is whether the re- vamped KVP " is it really worth investing for one and all “?

Let’s begin with understanding the salient features of the recently launched KVP.

- The rate of Interest is 8.4 % p.a. which is taxable on maturity.

- The tenure (maturity period) will be 100 months.

- This effectively means that money invested doubles on maturity.

- There is no tax deduction under Sec 80C available for this investment.

- It is to be held in physical form only (i.e. certificate). This will be a bearer instrument just like currency and easy to encash.

- There is no cap or limit on maximum investment.

- KVPs, are available in denominations of Rs 1,000, Rs 5,000, Rs 10,000 and Rs 50,000.

- Investors in KVP have to comply with the KYC (Know your client) rules.

- No PAN Card is required for investment.

- The mode of holding can be in single or joint names and is transferable from one person to any other person / persons, any number of times.

- Nomination facility is available.

- KVP can also be pledged as security to avail loans from the banks and in other case where security is required to be deposited.

- For now the KVPs, will be sold through post offices, but will soon be made available to the investors through designated branches of nationalised banks.

- An investor can encash his certificates after the lock-in period of 2 years and 6 months and thereafter in any block of six months on pre-determined maturity value.

From the features listed above, prima facie it is evident that the new KVP does not get a tick on all boxes as the first choice for all investors on various parameters. It does have its pros and cons.

For the investor, especially those in the higher tax slab, the new KVP does not attract attention mainly due to the fact that there are equally good or in fact better options in the fixed income category available today.

Medium to long term investment options such as PPF, tax free bonds, debt-based mutual funds and NSC score over the new KVP in terms of better post-tax returns, as well as tax benefits on investment. For those investing in bank FDs too, the post tax returns and flexibility in investment duration are more favorable than the new KVP.

Thus it is pretty evident that by re - launching the new KVP, it is the new government’s initiative to reach out to the masses who are not yet even looking at banks for their investments. This scheme should surely appeal to the rural population which is largely not financially savvy and have been invariably misguided into investing their hard earned money into inappropriate, fraudulent or ponzi-like schemes. It could well turn out to be a boon for them as it would inculcate the habit of long term savings with reasonable returns guaranteed by the government. It would also aid the government as the funds received from Kisan Vikas Patra would add and enhance the government’s long term funding requirements.

To sum it up, there is one thing which is clearly evident. The new KVP is the government’s initiative of getting mass participation of our population through the reintroduction of Kisan Vikas Patra. It now needs to be seen whether the sequel i.e the ‘New KVP ‘outshines the previous KVP in acceptability and performance for the investors of this country.

The author is a member of The Financial Planners’ Guild, India and Founder, Full circle Financial Planners and Advisors (a SEBI-Registered Investment Adviser