Post Office Kisan Vikas Patra Review

In this post I will analyze a popular product the Post Office Kisan Vikas Patra and share with you a detailed analysis and review of KVP.

What is Kisan Vikas Patra (KVP)?

Kisan Vikas Patra is a long-term and risk-free fixed deposit like product in which the principal and an equal amount of interest are paid pack at the end of a fixed period. The unique feature of Kisan Vikas Patra is that your money will double in 110 months.

KVP is sold by the Govt and can be purchased through Post Office. Kisan Vikas Patra can be purchased by making payment either in cash, cheque, pay order or demand draft.

History of Kisan Vikas Patra

  • Kisan Vikas Patra was first launched on 1 April 1988, with a maturity period of five years and six months.
  • It was a very popular scheme among poor and middle-class people.
  • However, the UPA Government (Congress) under supervision of Shayamla Gopinath Committee decided to close the scheme. This was a big blow to the poor people and villagers in India.
  • This instrument was apparently discontinued due to fears of Money Laundering as it was a Bearer Instrument and both the amount invested and the amount received on maturity could be received in cash.
  • Finance minister Arun Jaitley on 18 November relaunched Kisan Vikas Patra (KVP).
  • The product was relaunched to provide an easy instrument of saving to those who did not have access to other such instruments and have to, therefore, go with cash or buy gold and silver. “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,” said the Finance Minister.
  • Interest Rate at the time of launch was 8.7%. From 1st April 2016, Post Office KVP Interest Rate is 7.8%.

7 Difference between the old and new KVP

  1. Maturity amount will not be paid in cash.
  2. Maturity Proceeds will be transferred to the Post Office Savings Account.
  3. No KYC Norms would be applicable at the time of purchase of KVP.
  4. TDS @ 10% is applicable on the Interest earned on KVP.
  5. Increase in Maturity Period from 8 years & 7 months to 9 years & 2 Months. This increase in the time period has led to decrease in Interest Rate on KVP from 8.4%.
  6. Today Post Office KVP interest rate is 7.8%.
  7. KVP will initially be available in Post Offices only would later also be available in specified branches of nationalized banks.

KVP Investment Amount

  • The minimum investment amount required to start with is Rs.1,000.
  • Earlier, the minimum was just Rs.100.
  • You can only invest in the denominations of only Rs.1,000, Rs.5,000, Rs.10,000 and Rs.50,000.
  • You cannot invest say, Rs.1,500, or Rs.2,500, or Rs.5,500.
  • There is no maximum limit.

Post Office KVP Interest Rate

  • Amount Invested doubles in 110 months (9 years & 2 months).
  • So if you invest Rs. 1,000 in this instrument – on maturity i.e. after 9 years and 2 months – the amount invested by you will get doubled to Rs. 2,000.
  • And therefore the effective Post Office KVP Interest Rate is 7.8 %.

Who Can Invest in PO KVP?

Kisan Vikas Patra can be purchased by:

  • An adult in his own name, or on behalf of a minor
  • A Trust
  • Two adults jointly

Therefore Kisan Vikas Patra Certificates are of the following types:

  • Single Holder Type Certificate: Issued to an Adult for himself or on behalf of a minor or to a minor.
  • Joint A type Certificate: Issued jointly to 2 adults payable to both the holders jointly or to the survivor.
  • Joint B type Certificate: Issued jointly to 2 adults payable to either of the holders jointly or to the Survivor.

Can NRI’s invest in KVP?

Investment in this instrument is only allowed to Resident Indians and therefore NRI’s cannot invest in this instrument.

Can HUF invest in KVP?

UF is also not allowed to invest in this instrument.

How to buy Kisan Vikas Patra?

To buy KVP you have to submit an application in Form A or Form A1 either in person or through an agent of the small savings scheme.

KYC Requirements for KVP

To invest more than Rs.50,000, you have to submit a copy of your Permanent Account Number (PAN) card.
To invest more than Rs.10 lakh, you will also have to submit documents that show the source of funds.

Dsitribution

The government plans to make KVP available through designated branches of nationalized banks as well. These banks are likely to be the ones that already distribute Public Provident Fund.

You can only invest in the physical form and, hence, need to visit a post office. As of now, the product is not available online

Is KVP available online?

Kisan Vikas Patra is not available online.

Premature Withdrawl of Kisan Vikas Patra

Kisan Vikas Patra may be prematurely encashed any time before its maturity:

  1. On the death of the Holder or any of the Holders in case of Joint Holders
  2. On forfeiture by a pledge being Gazetted Govt Officer
  3. When ordered by a court of Law

Amount paid on Premature Encashment of KVP

  • In premature encashment of the KVP, the amount is paid depending on the period of holding of the KVP.
  • You can withdraw only a pre-determined amount.
  • The interest will apply for six-month tranches.

What to do on maturity of Kisan Vikas Patra?

  1. You can redeem the KVP from any post office across India.
  2. However, if you redeem at any post office other than the post office from which it was purchased, you have to show them the Identity Slip (which is issued at the time of Purchase).
    If Identity Slip is not available, you have to redeemed on verification from the Post Office from which it was purchased that the person redeeming the same is entitled to do so.

Interest paid after Maturity

If you do not get the amount on maturity of the KVP, you will receive interest equal to the Interest paid on Savings Account.

Tax on Kisan Vikas Patra

  1. The amount invested in the Kisan Vikas Patra cannot be claimed as a deduction under Section 80C.
  2. The Interest on Kisan Vikas Patra is not exempt from Income Tax.
  3. Interest is taxable as per the Slab Rates.
  4. TDS @ 10% would also be deducted from Interest.

Loans Against KVP

You can also get loan against KVP.

What to do when KVP Certificate is lost?

  • To obtain a duplicate KVP certificate, you have to write to the Post Office of KVP issue for a duplicate certificate. Attach your identity slip.
  • If you have lost or misplaced the identity slip, you have to contact the Post Office of issue and meet the Post Master general.

Conclusion

Post Office Kisan Vikas Patra is a great product and would have been ideal for poor people. Yet the Government does not care about poor people.

First Congress government stopped the product, and then BJP government has reduced the interest rate from 8.7% to 7.8%. As it is farmers have very limited investment options, yet by reducing interest rate BJP government’s Finance Minister is no different than Congress Finance Minister.

While rich businessman and politicians continue to default on bank loans, poor people are burdened with a lower interest rate.

It is a very good prouct, but such a low Post Office KVP Interest rate is making it unattractive. However it continues to be one of the safest products being a government scheme.

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References

A Few Last Words

Before making any investment decision, please contact your financial adviser. I have provided this article for educational purpose only.

I hope you found this article on Post Office Kisan Vikas Patra Review useful. If you have something to add please leave a comment in the post. Please feel free to contact me.

Subhodeep Mukhopadhyay

I am a Management Consultant in the Education Sector. In my previous corporate career, I have worked in Banking, Private Equity and Software industry. I am an MBA in Finance/ Computer Engineer and enjoy doing equity research and financial analysis in my free time.

3 thoughts on “Post Office Kisan Vikas Patra Review

  • May 7, 2016 at 8:47 pm
    Permalink

    Subhodeep…very useful read this one and yes remember in the good old days tgat kyp was a useful savings scheme..but the reintroduced form is not so attractive with longer period for doubling and lesser rate of interest. However, this is still a safe bet.

    Reply
  • March 22, 2017 at 7:21 pm
    Permalink

    Subhodeep,
    Most detailed article which I found about Kisan Vikas Patra and yes you are right rich people can get away with large sums, whereas a poor man can get prosecuted for 100Rs default.

    Reply

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