The Kissan Vikas Patra has been relaunched amidst a lot of worries that it could lead to money laundering into the scheme, one reason which is why it was discontinued earlier.

Essentially, if one is looking at a fixed interest yielding investment, one looks at interest rates, liquidity and tax saving ability. Now, why would one want to invest in an instrument that is not competitive on all three fronts. Take a look at why bank deposits are a better proposition then the newly launched Kissan Vikas Patra as an investment.

1) Poor Interest Rates as Compared to Banks

The amount invested doubles during this period. Thus the interest rate works out to around 8.68 per cent per annum. If you put the same amount in a fixed deposit, you can get slightly higher interest rate of 8.9 per cent and senior citizens are offered 0.50 per cent more. Banks with their compounding every quarter are capable of providing you far superior returns for the same period and the yield could work as high as 10%.

2) Liquidity

Now, the liquidity in case of Kissan Vikas Patra is not as good as bank deposits. Premature withdrawal is not allowed until lock-in period, which has been fixed at two years and six months, or in case of the holder's death. This is not a problem with banks. Some banks do not charge penalty on withdrawal of a fixed deposit making them an even more attractive proposition.

3) No Additional Interest Rates For Senior Citizen

Banks offer senior citizens an additional interest rate of 0.50 per cent. There is no such benefit for senior citizens in the Kissan Vikas Patra.

4) Bank Deposits Do Have Sec 80C Benefits

Tax Savings Bank Deposits do offer tax benefit Under Sec 80C. What this means is that upto Rs 1.5 lakhs can be availed Under Sec 80C with interest rates as good as the Kissan Vikas Patra. The KVP is not an instruments under which we have these benefits. Bank tax savings deposits offer Sec 80C benefits.

5) Tax Savings Ability

The Interest on the Kissan Vikas Patra is fully taxable. Unlike the PPF where the interest accrued is tax free, there is no such benefits. Ditto for bank deposits.

Conclusion

I am not sure why an investor would want to lock money in the KVP, apart from the fact that it is a very safe instrument being backed by the government. But, so as bank deposits at government banks in India.

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