Summary of this article
Investment doubles in 115 months
Government-backed with assured returns
Limitations of the scheme are no tax benefits and limited liquidity
A government-backed small savings scheme, namely Kisan Vikas Patra (KVP), is a long-term savings scheme that is now available for the common masses as well. The KVP is offered through India Post, which focuses on providing sure returns over the long term. This scheme is attractive to the conservative investor who prefers safety and predictability over the risks that come with investing in the markets.
What sets KVP apart is the ability to double the invested amount over a fixed tenure. The current interest rate for this scheme is around 7.5 per cent, which will be compounded annually. The investment doubles in 115 months, which is roughly 9 years and 5 to 7 months. The fixed return enables the investors to plan their financial goals with much more clarity and confidence.
As per a report by Live Mint, this scheme is now open to all Indian residents, not just farmers, despite the name. Individuals can invest solely as well as jointly, and even minors can hold an account through their guardians. The minimum investment amount starts at Rs 1,000 only, and there is no upper limit for the same. This condition makes this scheme highly accessible to small and large investors.
This scheme follows a compound interest mechanism. When returns accumulate annually, but are paid out when they mature. This makes sure that the invested amount sees a steady growth, requiring minimal interference. Since it is a government-backed scheme, it offers a confident level of security, which protects both principal and returns from market fluctuations, making the small-scale investor feel secure about their money.
However, this scheme has a catch: it comes with a lock-in period of 30 months, which is almost 2.5 years. Premature withdrawal in this period is not allowed, unless the circumstances require so, such as the death of the account holder or being validated with a court order. Under these instances, early withdrawal is allowed, but the account holder may not yield the full benefits.
Another clause is the taxation; unlike many small savings schemes, KVP does not offer any tax benefits or rebates under Section 80C. Additionally, the interest which is earned can be fully taxable, which may reduce the total expected amount by the investors in higher tax brackets.
In conclusion, KVP is a quite straightforward scheme, with very low risk investment perks, capital protection, and assured growth. While it may not be tax-effective for some, it is for the small-scale investor who wishes to keep the invested amount safe and not lose it in the market volatility.
