Kisan Vikas Patra (KVP)
Kisan Vikas Patra (KVP) is a saving instrument launched by the Government for individual savers, wherein invested money doubled during the maturity period. This savings scheme was first launched by the Government on 1 April, 1988 and was distributed through post offices. It was discontinued in 2011 and later reintroduced in 2014.
KVP is considered a part of the National Small Savings Fund. (for details on the accounting of the funds thus collected, please see the write up on National Small Savings Fund). In Hindi, Kisan stands for farmers, Vikas for development and Patra for certificate.
However, as the name might suggest, this is not a scheme intended only for farmers nor is the raised money used only for farmers' development. In fact, the Scheme does not distinguish between rural or urban investors. Rather, it had an urban bias. Further, the money raised through KVP is invested in central and state government securities, thus financing the respective Governments indirectly.
In KVP, a single holder type certificate was issued to an adult for himself or on behalf of a minor, or jointly to two adults. When introduced initially, it was available in denominations of INR. 100/-, 500/-, 1000/-, 5000/-, 10,000/-, in all Post Offices and INR. 50,000/- in all Head Post Offices.
Further, there was no limit on investment under KVP. In addition, it was easily transferrable like a bearer instrument. It had longer maturity than a term deposit and had higher interest rate than a government security of a comparable maturity. The maturity period of the scheme, when launched, was 5 ½ years and the money invested doubled on maturity. However, KVP is not a tax saving instrument as it does not offer any income tax exemption.
The scheme was very popular among the investors and the percentage share of gross collections secured in KVP was in the range of 9% to 29% against the total collections received under all National Savings Schemes in the country. Gross collections under the scheme in the year 2010-11 were Rs. 21631.16 crores which was 9% of the total gross collections during the year.
However, the Committee set up for comprehensive review of National Small Savings Fund (NSSF) headed by Smt. Shyamala Gopinath, Deputy Governor, Reserve Bank of India which submitted its report in June 2011 had recommended discontinuation of Kisan Vikas Patra. Committee observed as follows:
"The continued popularity of both KVP and National Savings Certificate (NSC) among the urban population who are not all small savers could be prompted by an incentive to avoid tax. As compared to NSC, KVP is more popular as it is a bearer-like certificate due to its ease of transfer. It also has an in built liquidity due to the regulated premature closure facility offered in the scheme. The absence of Tax deduction at Source (TDS) and ceiling on investment, tax benefits on NSC and higher than market rate of return have posed considerable fiscal costs to the Government. The deposits under both KVP and NSC can be pledged as a security with financial intermediaries, including banks. The Rakesh Mohan Committee had recommended that both these instruments are quite expensive in terms of the effective cost to the Government and felt that these instruments should be discontinued to ensure an equitable and harmonious tax treatment across the full spectrum of medium term savings schemes. The Committee endorses this recommendation. In view of the recent developments on Anti money laundering (AML)/Combating the Financing of Terrorism (CFT) front, the Committee recommends that KVP should be discontinued."
Committee had also recommended to examine the reasons for large number of irregularities, such as opening of irregular accounts and issue of NSCs and KVPs to the persons firms, institutions, trust, etc, and to suggest remedial measures to curb such irregularities.
Accordingly, the Scheme was discontinued from 01.12.2011. In the year of its closure, the scheme secured gross collections of Rs. 7575.95 crores (April 2011 to November 2011). In 2011, it yielded around 8.41% and money used to double in 8 years and 7 months.
However, in view of the popular demand and to revitalize Small Savings, the Finance Minister vide para 27 of his Budget Speech of 2014-15 (July) announced that Kisan Vikas Patra (KVP) will be reintroduced. This was implemented with effect from 18 November 2014.
The major concern regarding KVP has been addressed now as KYC norms (Know your client norms) regarding all National Savings Schemes (NSS) are now applicable in post offices and banks w.e.f. January, 2012.
The re-launched Kisan Vikas Patra (KVP) will be available to the investors in the denomination of Rs. 1000, 5000, 10,000 and 50,000, with no upper ceiling on investment. The certificates can be issued in single or joint names and can be transferred from one person to any other person / persons, multiple times. The facility of transfer from one post office to another anywhere in India and of nomination will be available. As in the case of previous issue, the certificate can also be pledged as security to avail loans from the banks and in other case where security is required to be deposited. Though, initially the certificates will be sold through post offices, it is intended to make it available to the investing public through designated branches of nationalized banks, in contrast to the original KVP.
As in the previous issue, Kisan Vikas Patras have unique liquidity feature, where an investor can, if he so desires, encash his certificates after the lock-in period of 2 years and 6 months and thereafter in any block of six months on pre-determined maturity value. The investment made in the certificate will double in 100 months (8 years and 4 months).
From the year 2012-13, the interest rates on various Small Savings Schemes (SSS), like Kisan Vikas Patra, were being recalculated and notified in the month of March every year. These rates were applicable for the next financial year. This was being done in line with the recommendations of the Shyamala Gopinath Committee to ensure that the interest rates of Small Savings Schemes are market linked. On 16th February, 2016, it was notified by the Government that instead of annual resetting of interest rates for the upcoming financial year, the interest rates would be reset every quarter based on the G-Sec yields of the previous three months. For instance, the interest rates for various Small Savings Schemes for the 1st quarter of 2016-17 would be recalculated with reference to the G-Sec yields of equivalent maturity for the months December 2015 to February 2016. As per this new methodology, interest rate on KVP for the first quarter of 2016-17 got reduced from 8.7% to 7.8%. That is now the doubling of investment would happen in 110 months instead of 100 months. This would be the new method for setting interest rate on KVP from 2016 onwards.
Reintroduction of Kisan Vikas Patra (KVP) was to provide a safe and secure investment avenue to the investors so as to help in augmenting the savings rate in the country. The scheme is also aimed at safeguarding investors from fraudulent schemes, considering the number of ponzi schemes that have surfaced particularly after the closure of KVP. With a maturity period of 8 years 4 months, the collections under the scheme will be available with the Govt. for a fairly long period to be utilized in financing developmental plans of the Centre and State Governments.
- Report of the Committee on Comprehensive Review of National Small Savings Fund June, 2011
- PIB Release of 17 November 2014