Kisan Vikas Patra (KVP), was originally unveiled in the year 1988 and became the talk of town among small investors with its own unique selling propositions was “Double your Money in just 5 and half year”. Despite being a very popular small savings scheme, it was disbanded in November 2011 in the wake of it might be used to get black money into the system and serious concerns raised by tax authorities. After four years, with the aim at raising savings in the country and to curb the menace of ponzi schemes, KVP is re-launched with revised norms and its USP is, now “Double money in 100 months (8 years and 4 months)”with an effective annual return of 8.7 percent. While channelizing savings towards trusted government scheme, re-launching of KVP would serve two-fold purposes as it would help as safeguard to poor gullible investors from fraudulent schemes such as some ponzi schemes, where their hard earned savings evaporate. Secondly, with an urgent need to collect the money under the scheme for a fairly long period to be utilized in financing developmental plans of the Centre and State Governments and will also help in enhancing domestic household financial savings.
In the first phase of the scheme, the certificates would be sold as bearer instruments, without the holder’s name through post-office and the same will soon be made available to the investing public through designated branches of nationalized banks. The instrument is available to the investors in the denomination of Rs. 1000, Rs. 5,000, Rs. 10,000 and Rs. 50,000, with no upper limit on investment. The certificates can be issued in single or joint names and can be transferred from one person to any other person / persons, multiple times. The facility of transfer from one post office to another anywhere in India and of nomination will be available. The certificate can also be pledged as security to avail loans from the banks and in other case where security is required to be deposited.
Menace of Kisan Vikas Patra
Though it’s re-launching looks very tempting option to invest in this stale scheme because we all Indian Investors keep always looking to invest in the new regime schemes without any depth of understanding the product, we should check important considerations before investing.
- Bearer Certificate: Since it is a bearer instrument without limit, means the certificate not carrying the owner’s name, once sold, it becomes an anonymous instrument once issued. In case the certificate is lost, it will be nightmare for small investor to get re-issue the duplicate and redeem it. Unlike Fixed deposit receipts, it is like currency notes thus the safety of instrument will be prime focus to investors; it is simply cash in another form.
- No Tax-break: Unlike amount invested in NSC and its earned interest are the eligible instrument for deduction under section 80C, KVP has not given any tax-break, hence it is a tax inefficient instrument. In short, considering tax benefits NSC is undoubtedly better than KVP, however if tax is not the criteria, then KVP returns are a little better than NSC.
- Post-Tax Yield: The tax treatment of KVP is similar to fixed deposits or other post office term deposits. Its interest is very much taxable and the post-tax yield of people in highest income slab will be squeezed approximately 6.01% after tax which is not advisable to those people as it makes more sense to invest in debt mutual funds which are more tax efficient if the investment horizon is for more than 3 years.
- Lock-in Period: Though KVP will become cashable on its pre-determined maturity period of 8 years and 4 months, it will carry a lock-in period of 2 years and 6 months after which they can be encashed and thereafter in any block of six months on pre-determined maturity value. In the liquidity front, the KVP’s 30-month lock-in period may likely to be the biggest block for an investor.
- Invitation to Black Money: Allaying fears on the decision to allow unlimited number of transfers of KVPs and no ceiling limit to invest, it may be used as an instrument to recycle black money. Rs 1 crore invested in KVPs of the face value of Rs 50,000 each will involve the creation of only 200 certificates. Not a very big pile and very portable for black money holders.
Conclusion
KisanVikas Patra is all set to go into debt financial market, but there is nothing new reason to invest for savvy investor who has already more options to invest in debt instruments such as NSCs, PPF and bank fixed deposits etc. It may be beneficial for a people in lower income tax bracket who would like to hedge the risk against falling interest rates. In a falling interest rate environment over the next few years, KVPs might well be sold at a premium as they get transferred. If rates come down, KVPs may even draw some of the money that goes into gold as an inflation-hedge. In a nutshell, it is just a tool for new government to get unearthed the black money to bring in circulation and to stop the trend of gold express euphoria to cut the surplus money to buy the gold.
Suresh Kumar Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner’s Guild, India. He is also a member of Financial Planner’s Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at info@prudentfp.in