Post Office Savings Schemes include two very popular certificate schemes i.e Kisan Vikas Patra (KVP) and National Savings Certificate (NSC). These schemes involve the purchase of certificates by investors through the lump-sum investment or one-time deposit which will be later paid back at maturity along with the interest. Both schemes are one of the safest investment options for the investors because of the sovereign guarantee of the central government on the investments in these schemes.
Kisan Vikas Patra is a small saving certificate scheme designed in a way that promises to double the amount of investment made by the investor in a pre-defined time which is at the maturity of the scheme. Currently, the maturity of the scheme is 124 months which means the investment made by an investor will be doubled in 124 months.
National Savings Certificate is also a small saving certificate scheme that encourages investments by individuals from the lower levels of income. The scheme has a fixed maturity of 5 years i.e lump-sum investment made by the investors will be paid back at the maturity of the scheme along with the interest. The current interest rate offered on the NSC is 6.8% which is compounded annually.
Both the schemes have the same requirements with respect to the investment limits i.e the minimum amount of investment is Rs.1000 and there is no upper limit.
What are the major differences between the KVP & NSC?
The Kisan Vikas Patra scheme generally(interest rates & maturity are subject to revision) has a long maturity tenure as compared to the National Saving Certificates. Currently, the KVP has a maturity period of 10 years 4 months whereas the NSC has a maturity period of 5 years.
As per the current interest rates, the KVP offers a slightly higher interest rate than the national savings certificate. The interest rate offered by KVP is 6.9% whereas, in the case of NSC the interest rate is 6.8%.
Talking about the taxation benefits, the KVP does not offer any kind of tax benefits whereas investments made in NSC are eligible for claiming tax deductions of up to Rs. 1.5 lacs under Section 80C of Income Tax Act,1961.
Pre-mature withdrawals or encashments in National Savings Certificates are generally restricted before the lock-in period of 5 years which is also the maturity of the scheme. However, withdrawals can be made in case of an order by the court, death of the holder, or in other mentioned conditions.
Premature encashments are allowed in investments in Kisan Vikas Patra after the lock-in period of 2.5 years from the date of the issue of the certificate. Withdrawals before the 2.5 years are allowed subject to penalty charges or cuts in interest rate depending upon the tenure of investment.
Investors can look into selecting the investment which is suitable for their requirements & meeting their financial goals. For example- Investors looking to invest for a long tenure & aiming for a long term financial goal, they can go for KVP. And investors looking to save the taxes & reduce their taxable income can go for NSC which will offer them tax benefits under section 80C.