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All that you need to know about KISAN VIKAS PATRA

Finance Minister resurrected the Kisan Vikas Patra to boost small savings and increase savings rate. You need to know about the scheme well. Goes without saying, it is very important for Pre, Mains and Interview.


Kisan Vikas Patra (KVP) is a savings certificate or a savings instrument.

It is a fixed interest, long term instrument for investment. KVPs are issued by Government of India, Department of Post. Since they are backed by the Government of India, KVPs are a virtually risk free avenue for investment. They can be bought from authorized post offices.

Widely popular in the 1990s, KVP is a small saving scheme just like the National Savings Certificate (NSC) or the Public Provident Fund (PPF).

Why was it discontinued?

This instrument was discontinued in 2011 due to fears of money laundering as it was a bearer instrument. This was as per the recommendation of Shyamla Gopinath committee on small savings.

You might be wondering what is a bearer instrument. A bearer instrument is a type of fixed-income security where the security is issued in physical form to the purchaser and is payable on demand.

Why has it been re-launched?

Savings rate in country has declined from a record high of 36.8 per cent to below 30 per cent. It is necessary to encourage people to save more. Or else, how to we get the cash for infrastructure growth? Paise ped pe nahi ugte.

♦ Lakhs of investors have fallen victim to fraudulent schemes, like the Saradha scam. Small saving scheme is safe. It will also wean away household savings from investments in gold.

♦ Most savers have difficulty in understanding financial instruments. 

♦ The collections under the scheme would also help the government mobilise funds for financing developmental plans and welfare schemes.

♦ Interest rates in the bond markets are going down. It is anticipated that this will translate into lower returns even for small saving products next fiscal, making KVP an attractive option then. How optimistic MoFin folks are. दूर की कौड़ी…

Who are eligible for it?

♦ Any citizen of India can invest in Kisan Vikas Patra in his name, or on behalf of a minor. A trust is also eligible to invest in KVP. Two adults can jointly buy KVP. Business entities such as a company or institutions, NRIs or HUF (Hindu Undivided Family) are not eligible to invest in KVP. You need not be a farmer to have a KVP. Sense a potential MCQ in this?


What are the features of Kisan Vikas Patra 2.0?

♦ The scheme is offered by Indian post office. Yes, they still function. The certificate will be issued by Post office called as “Kisan Vikas Patra” after basic KYC ( know your customer ) documentation.

♦ Investment can be made in denomination of Rs. 1000, 5000, 10,000 and 50,000.There is no upper ceiling on investment.

♦  KVP comes with a maturity of 100 months.

♦  The certificates can be issued in single or joint names and can be transferred from one person to any other person.

♦  KVPs can be transferred from one post office to another anywhere in India .

♦  One can avail loans on KVPs from the banks and in other case where security is required to be deposited. Initially, the Kisan Vikas Patra certificates will be sold through post offices, but later on they will be made available to the through designated branches of nationalised banks.

♦  Investor can en-cash his certificates after the lock-in period of 2 years and 6 months.

♦  No PAN number is required for investment in Kisan Vikas Patra upto a specified amount.

What are the advantages?

♦ KVPs will help stimulate savings in un-banked rural areas especially. Hence, financial inclusion.

♦  The revenue mobilized by this scheme can be used in welfare schemes. Also the increased investment can be utilized for infrastructure growth. Ergo, setting the country on a high growth path.

♦ It would help poor gullible investors to channelise their savings towards trusted government schemes instead of some ponzi schemes.

♦ The bond certificates can also be kept as collateral for loans. They can also be sold to a third person. Unlike fixed deposits and mutual funds, which cannot be easily transferred, the ownership of KVPs can be changed by a simple endorsement.

♦ They offer higher liquidity to investors as they can redeem the investment after a minimum lock-in period.

What are the disadvantages?

♦ The KVP’s 30-month lock-in period is likely to be the biggest block for an investor. This is because many middle and lower middle-class families may not be able to keep the money locked in due to unforeseen expenses or events.

♦ One major draw of the KVP is that there is no ceiling on investment as there are bank deposits, which also do not have any investment limits, are offering better rates than the KVPs.

♦  KVP is not tax-free. There are no tax benefits since interest accrued on Kisan Vikas Patra is taxable.

♦ Though the facility to sell a KVP to a third person injects more liquidity, there is a fear that financially illiterate investors might lose out if they miscalculate the accrued interest and sell the bonds at a discount.

♦ The proof of identity and address is all that is required to invest in the KVP. KYC is not that rigid. Since you can use cash to invest in the certificates, it can lead to laundering of black money.

Sarkari channels generally carry the best fodder for UPSC. Watch this discussion on DD NEWS to gain some more insight on KVP. 





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