Govt relaunches Kisan Vikas Patras
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New Scheme Aimed At Boosting Savings, Increasing Investment In Economy
The government on Tuesday
relaunched Kisan Vikas Patras (KVPs) and offered to double your
investment in 100 months as it looked to boost savings in the economy
and step up investment. The revamped scheme offers an annualized
return of 8.7%, but requires you to pay tax on the interest that accrues
on your investment. As a result, some experts believe that the real
rate of return may be negative during periods when the rate of inflation
is high.
In contrast, public provident fund (PPF) offers a similar interest rate but has a 15-year term.But, given that it is a completely tax-free product, the actual returns are much higher, especial ly for those in the 30% bracket.On the flip side, PPF investment is capped at Rs 1.5 lakh annually, while there is no such cap on KVPs, which come in denominations of Rs 1,000, Rs 5,000, Rs 10,000 and Rs 50,000. While the interest rate is fixed, PPF also comes with the risk of interest rate changing during the 15-year term. Even bank fixed deposits (tax-free for more than five-year maturity) offer rates that are similar to PPF .
For instance, SBI offers 8.5% on deposits with 5-10 year maturity (8.75% for senior citizens). “It depends on what your needs are. To me, a bigger risk is holding it (KVP certificate) physically ,“ said personal finance expert Gaurav Mashruwala.
For the government, howev er, KVP could prove to be a money spinner and, in the process, boost savings in the economy .Between 1998 and November 2011, KVP generated up to 29% of the gross collections. Fi nance minister Arun Jaitley said KVP will be a good investment option, especially for the poor and help keep them away from ponzi schemes.
“In the last two to three years, savings rate in the country has declined from a record high of 36.8% to below 30% due to slowdown in the economy . It is, therefore, necessary to encourage people to save more,“ Jaitley said, while launching the revamped product.
KVP would serve two purposes, he said. One, it would help poor, gullible investors to channelize their savings towards a trusted government scheme instead of some ponzi schemes, where hard-earned savings disappear. “Secondly , there is an urgent need to raise savings in the country ...these savings are then used for nation-building.Such a saving instrument not only earns interest but helps in development of the country ,“ he said.
In contrast, public provident fund (PPF) offers a similar interest rate but has a 15-year term.But, given that it is a completely tax-free product, the actual returns are much higher, especial ly for those in the 30% bracket.On the flip side, PPF investment is capped at Rs 1.5 lakh annually, while there is no such cap on KVPs, which come in denominations of Rs 1,000, Rs 5,000, Rs 10,000 and Rs 50,000. While the interest rate is fixed, PPF also comes with the risk of interest rate changing during the 15-year term. Even bank fixed deposits (tax-free for more than five-year maturity) offer rates that are similar to PPF .
For instance, SBI offers 8.5% on deposits with 5-10 year maturity (8.75% for senior citizens). “It depends on what your needs are. To me, a bigger risk is holding it (KVP certificate) physically ,“ said personal finance expert Gaurav Mashruwala.
For the government, howev er, KVP could prove to be a money spinner and, in the process, boost savings in the economy .Between 1998 and November 2011, KVP generated up to 29% of the gross collections. Fi nance minister Arun Jaitley said KVP will be a good investment option, especially for the poor and help keep them away from ponzi schemes.
“In the last two to three years, savings rate in the country has declined from a record high of 36.8% to below 30% due to slowdown in the economy . It is, therefore, necessary to encourage people to save more,“ Jaitley said, while launching the revamped product.
KVP would serve two purposes, he said. One, it would help poor, gullible investors to channelize their savings towards a trusted government scheme instead of some ponzi schemes, where hard-earned savings disappear. “Secondly , there is an urgent need to raise savings in the country ...these savings are then used for nation-building.Such a saving instrument not only earns interest but helps in development of the country ,“ he said.
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