5 minsJune 11, 2018
Kisan Vikas Patra (KVP) is a small savings scheme issued by the Government of India, and is quite popular among risk-averse investors.
This small savings scheme was originally introduced in 1988, though this scheme was successful right from its inception, later it was discontinued in 2011 based on the recommendation of the committee setup by GoI. This scheme was later re-introduced
by GoI with some changes in 2014.
KVP certificates can be purchased from any Post Office in India or designated Bank branches such as Axis Bank.
Who can invest in KVP?
Resident Individuals: An adult resident individual can purchase KVP in his own name or on behalf of a minor. KVP certificate can also be jointly held as mentioned below:
- Joint A Type Certificate: Issued jointly to two adults, payable to both the holders jointly or to the survivor.
- Joint B Type Certificate: Issued jointly to two adults, payable to either of the holders jointly or to the survivor.
However, Hindu Undivided Families (HUFs) and Non-Resident Indians (NRIs) are not permitted to invest in KVP. Nomination facility is available. Holder/s can nominate any person who, in the event of death of the single holder or both the joint holders,
as the case may be, shall become entitled to the Certificate and to the payment of the amount due thereon.
How to purchase KVP?
Filling in an application in ‘Form A’ is necessary.
The documents required are:
- Age proof (Passport, Aadhaar, PAN, etc.)
- Address proof (Aadhaar, Passport, electricity bill, telephone bill, ration card, etc.)
- Photo identification proof (Aadhaar, voter id, PAN, Passport, driving license, etc.)
The minimum investment in KVP is Rs 1,000 and in multiples thereof, while there’s no limit on the maximum amount that one can invest.
For investments above Rs 50,000, customer PAN is mandatory
Investments in KVP are subject to a lock-in period of 2 years and six months. Certificates cannot be redeemed before this period.
Investments can be done in cash/cheque/Pay Order/Demand Draft. For cash payments, the certificate/s are issued almost immediately.
Is there a tax benefit on purchase of KVP?
No, there is no tax benefit or deduction under Section 80C of the Income-Tax Act, 1961 on purchase/investment in KVP.
What is the rate of interest on KVP and tenure?
Currently, the rate of interest on KVP is 7.7% p.a. compounded annually. But, this is hinged to 10-year G-sec yield, and therefore subject to change as per government notification. The rate of interest is reviewed quarterly.
Investment gets doubled in 112 months or in 9 years 4 months at present rate of interest. (Duration is subject to change as per Interest rates prevailing in the market at the time of investment)
Is the interest taxable and what happens at maturity?
Yes, interest earned on KVP is taxable as per you tax slab. Tax Deduction at Source (TDS) is not applicable for investment in KVP.
At maturity, you can redeem the maturity proceeds (principal + interest) by approaching your post office or bank from where you have purchased the KVP certificate. All you have to do is submit a closure application form . Preferably, carry your
identification proof/identity slip issued at the time of purchase.
Are KVP certificates transferrable?
Yes, KVP certificates are transferrable from one post office to another one, anywhere in India, and from one person to another.
In case of the latter, i.e. transfer from one person to another, the following cases are permissible, but a letter in this regard needs to be submitted:
- Transfer from one owner to joint holders
- Transfer from joint holders to one of the holders
- Transfer from name of the deceased to his legal heir
- From the joint holder/s to the judge of law and also to other individual/s as ordered by the Court of Law
Is loan against KVP available?
Yes, you can pledge your KVP certificate/s as collateral and obtain loan against them. However the loan against KVP certificates needs to be repaid during the tenure of KVP.
Here are some key benefits KVP offers:
- You have the flexibility to choose the investment amount, minimum investment in KVP is Rs 1,000
- Offers safe and steady return on your investment. The amount to be received at maturity is mentioned on the certificate/s
- After 2 ½ years, you can prematurely encash KVP certificate/s
- KVP certificate/s are easily transferrable
- Take a loan against KVP certificate/s, whenever you are in needs of funds
So, KVP is a good investment avenue, but depends on your investment objective, investment time horizon, risk profile, liquidity needs, and the financial goals you are addressing.
Nonetheless, broadly, if you are risk-averse, KVP is a promising investment avenue for you.
Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm known for offering unbiased and honest opinion on investing. Axis bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.