New Kisan Vikas Patra- a good choice for small investors
Finally the KVP is again available in post offices for subscription. Finance Minister Arun Jaitley announced reintroduction of the erstwhile popular small savings scheme Kisan Vikas Patra (KVP) through his budget speech on 18th November 2014. The scheme was discontinued by the previous government in 2011 amid concern of it being used for money laundering. The objective to re-launchthe scheme is to provide an ease of investment especially to those who do not have access to mainstream financial products like fixed deposits and mutual funds.
Considering the recent chit fund scams where millions of people lost money, the introduction KVP is expected to provide a secured alternative to the common man. Coupled with simplified KYC norms KVP has the potential to mobilize huge funds that will be available with the Indian government for a fairly long period to be utilized in financing developmental plans of the Centre and State Governments.
With the reintroduction of KVP the government has signaled the need to improve the national savings rate which has fallen below 30%. The finance minister had stated in his budget speech about his intention to reintroduce this very popular instrument among small savers. “KVP has been reintroduced to give direction to the money lying idle in the bank or in form of cash, both banked and unbanked savings,” reiterated Jaitley at the launch in New Delhi.
The re-launched Kisan Vikas Patra (KVP) will be available to the investors in the denomination of Rs. 1000, 5000, 10,000 and 50,000, with no upper ceiling on investment. The certificates can be issued in single or joint names and can be transferred from one person to another person, multiple times. It can be transferred from one post office to another anywhere in India. 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. Initially the certificates will be sold through post offices, but the same will soon be made available to the investing public through designated branches of public sector banks.
Investments made in new KVP will double in 100 months or we can say 8 year and 4 months giving an effective yield of 8.67%.However the interest earned is taxable at slab rate applicable to individual. In comparison SBI offers 8.5% rate for interest for fixed deposits above 5 years. Good part is that investors can lock their money for long term in KVP at prevailing interest rate.New KVP is a good choice for investors whose income is below minimum threshold limit or those who are in lower tax bracket. But considering the fact that interest earned on the new KVP is taxable, it is not an attractive saving option for individuals who have access to other financial products,especially those in 20% and higher tax bracket.
