Kisan Vikas Patra: 4 Reasons not to invest in this

Share

Kisan Vikas Patra (KVP) has been reintroduced in Budget 2014 which was earlier discontinued in the year 2011. The Kisan Vikas Patra which is a fixed income earning instrument and on which fixed interest is paid can be purchased from any Post Office across India.

With the reintroduction of KVP, many people have started thinking of whether it is beneficial to be investing in KVP or not.

According to experts, before investing in any instrument – it should be compared to other instruments in the same category and then the decision should be taken accordingly. In this article, we have compared the KVP with other fixed income earning instruments of the same category and the other instruments seem to be more lucrative as compared to Investing in KVP. The comparative analysis is given in this article:-

The most popular instruments on which fixed interest is paid and can be compared with the Kisan Vikas Patra are:-

Kisan Vikas Patra (KVP):- 4 Reasons why you should not invest in this Instrument

  1. Interest Rate not attractive

The Interest Rate on Kisan Vikas Patra is 7.1% (from 1st April 2016 onwards) which is almost equal to/ lower as compared to the other instruments in the same category i.e. PPF Account, National Savings Certificate, and Fixed Deposits etc. However, other comparative instruments offer many other benefits which are not available in case of investment in KVP

  1. Deduction under Section 80C

Section 80C allows for a deduction of Rs 1,50,000 for investments made in specified instruments. However, no deduction under Section 80C is allowed for investments made in the Kisan Vikas Patra.

 The investment made in other instruments in the same category i.e. PPF Account and National Savings Certificate are allowed as deduction under Section 80C. The Investment made in 5 year fixed deposit with Banks is also allowed as a deduction under Section 80C. 

  1. The Interest earned is taxable

The Interest earned on the KVP is taxable under head Income from Other Sources. However, the interest earned on the National Savings Certificate and PPF Account is tax free.

  1. Lock-in period

The lock-in period of the Kisan Vikas Patra is fairly high as compared to the Normal Bank Fixed Deposits which can be broken any time with a small penalty.

Therefore, for the above 4 Reasons it is not advisable to be investing in the Kisan Vikas Patra as there are better alternatives available.  An investor should first try to invest in PPF Account as it gives the maximum benefit and once he has invested Rs. 1,50,000 during the year in PPF Account he can look forward to investing in Fixed Deposits and National Savings Certificate.

A Personal Finance enthusiast, Karan is the founder of charteredclub.com and loves to discuss about Money related matters.