The Kissan Vikas Patra (KVP)was launched last year and we continue to see adverts these days on the product. The sad thing with the KVP is that apart from being a government backed instrument, we hardly see any benefits from the same.
Tax Benefits and Kissan Vikas Patra
The Kissan Vikas Patra neither offers you tax benefit under Sec 80C nor is the interest income free from tax. On the other hand the interest rate in PPF at the moment is marginally higher at 8.75%, but that could change every year. On the other hand the KVP's interest rate is around 8.7%. it actually doubles your money in 8 years and 4 months.
You can bet much better interest rate from banks. For example, the Bank of Baroda deposit doubles your money in eight years and three months. The advantage of the bank deposit vis a vis the Kissan Vikas patra is that it gives you better liquidity as well. There are other banks that can double your money much faster.
KVP has a lock-in period
The Kissan Vikas Patra has a lock-in of 2 and half years. As far as security is concerned both the KVP and bank deposits are equally safe. Some of the PSU bank deposits are backed by the government and so is the KVP.
At the moment one does not see any significant advantage in the KVP as compared to other instruments,
There is also no extra interest rate for senior citizens
You can easily double your money in less than the stipulated time in a bank deposit if you are a senior citizen. This is because bank deposits offer you an extra 0.5%, while the KVP does not.
In the end one does not know why the KVP was relaunched. It's just another product, whose advantage is that it is a government backed product. The only other advantage is that it could be used by small savers who do not have a PAN card.
All in all, it's a product that can be skipped as investors could look for better yields elsewhere.