Kisan Vikas Patra Vs Bank FD
Although we have witnessed the growth of global capital markets over time, there are risks associated with them as well. In particular, we Indians have remained as risk-averse investors and we seek guaranteed returns. While instruments like bonds are widely regarded as safer tools, not everyone has access to them. Around 66% of our population resides in the rural parts of the country, and rely on agro-based businesses. To extend investing options to rural regions Public Sector Banks, Post Offices and Private Sector Banks have come up with a good number of schemes that carry low risk. Some of these schemes are Senior Citizen Savings Scheme, Kisan Vikas Patra Scheme, Post Office Savings Scheme, Sukanya Samriddhi Yojana, Bank Fixed Deposits etc. In this write-up let us take a closer look at Kisan Vikas Patra and Bank Fixed Deposits on the basis of a few criteria:
- Interest Rates: The rate of interest on the savings of the Kisan Vikas Patra scheme is determined by the government every quarter. As of now, this interest rate stands at 6.90%. On the other hand, interest rates on Fixed Deposits range from as low as 3.00% and can even be up to 8.00% in some banks. The rates are solely based on the lending bank and the investment tenure. Rightly chosen FDs can offer higher returns than the KVP scheme.
- Maturity Period: The KVP yojana promises to double the income in its maturity period. Hence, the maturity period depends on the interest rate at the time of initiating the scheme. For instance, if one invests in a KVP scheme in the current quarter, the maturity period is 124 months (at 6.90%). Whereas, the maturity period of a fixed deposit scheme ranges from 7 days to 10 years. Longer the tenure, higher the interest rates.
- Taxability: The major drawback of the Kisan Vikas Patra is that the gains from the scheme are not exempted from taxes. This leads to a reduced return after taxation. Similarly, the income earned from FDs is also taxed. However, there are special deposit schemes called Tax Saving FD, which are eligible for tax exemption of up to Rs. 1,50,000 under Section 80C. These Tax Saving FDs have a minimum lock-in period of 5 years.
- Minimum Deposit: Kisan Vikas Patra is a scheme that was introduced to attract mainly the rural population and encourage savings irrespective of the income levels. Hence, the minimum deposit that can be made is currently at Rs. 1000 and then in multiples of 100. On the other hand, the minimum deposit in case of a Fixed Deposit scheme is Rs.5000 (via mobile banking) and Rs. 10,000 (in case of physical approach in a local bank).
At an aggregate level, Fixed Deposits seem to be a better option in terms of returns and taxability. Kisan Vikas Patra is a preferable choice for individuals who do not get access to advanced financial instruments.