Investors looking to save for long term with complete safety of money may consider investing in Kisan Vikas Patra (KVP). The safety is the highest in KVP as it is backed by a government guarantee. Both, principal invested and interest earned by the investor is 100 per cent safe. Kisan Vikas Patra, a small savings investment is available with the post office for the individuals to invest in. The minimum investment can be made as low as Rs 1000 and, thereafter, in multiples of Rs 100. There is no upper limit and one can invest any amount in KVP certificates.
The deposit made in the KVP account will double on maturity. The maturity amount is repaid to the account holder on an application in Form-2 submitted to the accounts office. The maturity period of the deposit under this Scheme is determined on the rate of interest applicable at the time of opening the account. And, the rate of interest is fixed by the government at the start of every quarter of the financial years.
For the quarter October to December 2020, the KVP doubling period is 124 months and the deposit made in the account will double on maturity. The effective interest rate is close to 6.9 per cent per annum. Once invested, the rate of interest remains fixed for the investor till maturity.
The interest rate is constant since April 2020, while for January to March 2020, the rate of interest was 7.6 per cent per annum ( double in 113 months).
The two key downsides of investing in KVP are – One, the interest earned is fully taxable as per one’s tax slab and secondly, there are no interest payouts during the period of investment. For someone looking for monthly or quarterly interest payments, the KVP is not the right investment to consider. There is no tax benefit in KVP for the investors.
As the holding period is long, the post office rules also allow one to make premature closure of KVP before the maturity. Any such early withdrawal is allowed only after 2 years and 6 months and not before that.
The table below shows the premature closure value of KVP
Holding period till pre-mature closure: Amount payable inclusive of interest
Two and half years but less than three years: Rs 1154
Three years but less than three and half years: Rs 1188
Three and half years but less than four years: Rs 1222
Four years but less than four and half years: Rs 1258
Four and half years but less than five years: Rs 1294
Five years but less than five and half years: Rs 1332
Five and half years but less than six years: Rs 1371
Six years but less than six and half years: Rs 1411
Six and half years but less than seven years: Rs 1452
Seven years but less than seven and half years: Rs 1494
Seven and half years but less than eight years: Rs 1537
Eight years but less than eight and half years: Rs 1582
Eight and half years but less than nine years: Rs 1628
Nine years but less than nine and half years: Rs 1675
Nine and half years but less than ten years: Rs 1724
Ten years but before Maturity of Certificate: Rs 1774
On maturity of certificate: Rs 2000
