3/24/2015 NewKVP:WhatyouneedtoknowLivemint

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FinanceministerArunJaitleyon18NovemberrelaunchedKisanVikasPatra(KVP)thesmallsavingsschemethatwasdiscontinuedin2011.Itwasfirstlaunchedon1April1988,withamaturityperiodoffiveyearsandsixmonths.Theproductisbeingrelaunchedtoprovideaneasyinstrumentofsavingtothosewhodonthaveaccesstoothersuchinstrumentsandhaveto,therefore,gowithcashorbuygoldandsilver.

ThefinanceministerhadstatedinthebudgetinJulythathewantedtoreintroducetheproduct.KVPhasbeenreintroducedtogivedirectiontothemoneylyingidleinthebankorinformofcash,bothbankedandunbankedsavings,reiteratedJaitleyatthelaunchinNewDelhi.Healsosaidthatdomesticsavingsratehadfallentobelow30%andhenceitwasimportanttoencouragedomesticsavings.ThemediacampaignforKVPwasalsostartedonTuesday.

WhatisKVP?Shouldyouinvest?Readontofindtheanswers.

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Saharagetsthreemonthstosubmitfinalproposaltoraisefunds

KVPisafixedincome,longtermandriskfreegovernmentrunproduct.TheminimuminvestmentamountrequiredtostartwithisRs.1,000.Earlier,theminimumwasjustRs.100.Inthenewversion,youcanonlyinvestinthedenominationsofonlyRs.1,000,Rs.5,000,Rs.10,000andRs.50,000.Thismeansyoucantinvest,say,Rs.1,500,orRs.2,500,orRs.5,500.Ifyouwanttoinvest,say,Rs.60,000,youwillhaveuseacombinationof,say,Rs.10,000andRs.50,000.Thereisnomaximumlimit.ThenewtenorforKVPiseightyearsandfourmonths.Earlier,thematurityperiodwasalittlelongereightyearsandsevenmonths.

InvestmentsinKVPwillbedoubledin100months.However,therearenotaxbenefits.

Prematurewithdrawalisallowedafterthelockinperiodoftwoyearsandsixmonthsisover,orincaseoftheholdersdeath.

Afterlockinperiodisover,youcanwithdrawanytimebutconditionsapply.First,youcanwithdrawonlyapredeterminedamount.Andsecond,theinterestwillapplyforsixmonthtranches.Forinstance,ifyouwithdrawthemoneyin,say,threeyearseightmonths,youwillgettheinterestthatappliedtoathreeyearsixmonthperiod.

Youcanalsoavailaloanagainstit,buttheamountwillvaryacrossbanks.Forinstance,ifyoupledgeKVPthatscompletedtwoyearsbutlessthanthreeyears,thenAllahabadBankwillgive90%ofthefacevalue.

OnecaninvestinKVPeitherasasingleholderorasajointholder.Youcanalsopurchasetheproductonbehalfofaminorchild.KVPcanbetransferredtoanyotherpersonmultipletimes.Youwillbeallowedtotransferfromonepostofficetoanother,andcanalsochangethenomination.Asofnow,youcanbuyKVPfromanypostofficeorfromanauthorizedagent.Toinvestintheproductyouwillhavetodosubmitknowyourcustomer(KYC)relateddocuments,whichincludeaphotoidentityproof(suchaspassportorvotersidentity)andaddressproof.

IfyouinvestmorethanRs.50,000,youwillalsohavetosubmitacopyofyourPermanentAccountNumber(PAN)card.IncaseyouinvestmorethanRs.10lakh,youwillalsohavetosubmitdocumentsthatshowthesourceoffunds.

ThegovernmentplanstomakeKVPavailablethroughdesignatedbranchesofnationalizedbanksaswell.ThesebanksarelikelytobetheonesthatalreadydistributePublicProvidentFund.

Youcanonlyinvestinthephysicalformand,hence,needtovisitapostoffice.Asofnow,theproductisnotavailableonline.

Calculatingreturns

Asthematurityperiodoftheproducthasnowbeenreducedtoeightyearsandfourmonths,thereturnsareslightlyhigherat8.67%(itwas8.25%).

DorememberthatKVPisessentiallymeantforthosewhodonthaveaccesstoanyothersavingsvehicle,andthattherearebetterproductsavailable.Thisisforpeoplewhohavenoaccesstootherassetclassesandcomeunderthelowerendofthe

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economicspectrum.Inasense,itiscomparablewithbankfixeddeposits.However,asofnow,manybanksaregivingbetterreturns(onfixeddeposits),saidSureshSadagopan,aMumbaibasedfinancialplanner.

Withnotaxationbenefit,KVPdoesntworkforthoseinthehigherincomegroup.Onmaturity,theinterestincomeistaxedatyourmarginalrate.So,ifyouareinthehighesttaxbracketof30.9%,theeffectiverateofreturnwillbe5.99%.Ifyouareinthe20.6%and10.3%taxbrackets,theeffectivereturnswillbe6.88%and7.78%,respectively.

Thisproductworksforonlythosewhoeithercomeinthenotaxorlowtaxbracketandalsoforthosewhocanteasilyaccessbanks,saidSuryaBhatia,aDelhibasedfinancialplanner.

Hence,ifyouhaveaccesstootherfixedincomefinancialproducts,stayawayfromKVP.

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