Kisan Vikas Patra – The good, the bad, the Ugly

The finance minister recently introduced the Kisan Vikas Patra in its new avatar. Let us see some of its features

Interest Rate                – 8.7%

Period                           - 8 years 4 months

Redemption                 - Can be redeemed in 6 monthly intervals after a lock-in period on 2 years 6 months

Transferability              – Can be transferred with endorsement

Loan                               - Can be used as a collateral for loan

Minimum investment – Rs. 1,000/- and thereafter in multiples of Rs. 1,000/-

Maximum Investment – No Limit

Taxability                       – Interest is fully taxable

Documents required   – Proof of identity and address

Where to Purchase     – Post Office

The Good

The best part of Kisan Vikas Patra is there is no ceiling on the amount of investment. Even those who do not have a bank account or PAN card can apply. It has high liquidity, money can be withdrawn after just two and half years and there after every 6 months. The amount you would get at the end of every period is clearly mentioned. You could even use it as a collateral to get loan and can be transferred to anyone with just an endorsement.
The Bad

The interest rate guaranteed is 8.7% which is very less compared to other instruments for similar periods. The biggest problem is, it needs to be redeemed at the post office at which it was issued only and the interest is taxable.

The Ugly

Though the government has said that there will be KYC required, the absence of PAN makes room for a lot of black money.

Final View

Kisan Vikas Patra is good for village areas where they do not have access to banks. Hopefully the Jan Dan Yojna would overcome that. But for people in areas where there are banks, it would make more sense to put their money in Fixed Deposits, as you would get better rate of interest. Of course you have the taxability factor. To overcome tax issues, a better option would be Debt Mutual Fund, after taking indexation into account the tax would almost come to nil. Even for sr. Citizens its better to put their money in Sr. Citizen scheme where one can invest upto Rs. 15 lakhs and the interest rate is 9.2%, which is much higher than Kisan Vikas Patra.