Thursday, April 2, 2015

PPF Vrs Kisaan Vikas Patra

I have observed that a lot of people invest in Kisaan Vikas Patra (KVP) or Indira Vikas Patra (IVP) instead of PPF. Although both are debt based investment with equal interest rates. So let  us evaluate both the schemes having already evaluated SSY and PPF. Does investing in KVP/IVP really makes sense? Please refer to the table below

 If we observe the table, interest rates are same for both PPF and KVP, but KVP has the disadvantage of interest being taxed at the time of redemption (EET). So for all the people who fall in tax bracket PPF (EEE) is much better investment. People who do not fall in tax bracket will have advantage with KVP as the interest rate fluctuation risk is not there as the interest becomes fixed at the time of purchase of KVP and it also provide better liquidity.

For people seeking liquidity, KVP is a better instrument but if the investment has been done to avail 80C exemption then premature withdrawal will amount to foregoing the tax gains. Overall if someone is not very keen on short term liquidity ( liquid after 2.5 years), PPF is a much better investment option.

Category PPF KVP/IVP
Eligibility All Indian Residents All Indian Residents
Minimum Yearly Deposit 500 One time Deposit
Maximum Yearly Deposit Rs 1,50,000 No Limit
Duration 15 years, can be extended 5 Years to 7 years
Current Rate of Interest 8.7% (Floating) 8.70%
Complete Withdrawal After 15 year Allowed after 2.5 Years
Partial Withdrawal 50% of deposit after 6 years Allowed after 2.5 Years
Income Tax Benefit Investment Eligible for 80 C Benefit Eligible for 80 C Benefit
Income Tax Benefit Withdrawal Interest / Principal Exempt from Tax Interest is taxed
Accounts allowed per family One account per person No Limit
Loan Facility Loan available on PPF Deposit Loan Available 
KYC Norms Stringent Relaxed

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