If you are looking for investment options that contain almost zero to low risk, offer fixed returns and provide a higher interest rate than a savings bank account, National Savings Certificate(NSC) and Kisan Vikas Patra (KVP) are ideal investment choices. These are backed by the government and can be accessed through multiple Post Offices in India.
In this article, we will compare the differences between NSC and KVP. This will help you better understand what suits your Investment goal. Both schemes have their share of advantages, features, and limitations. You must weigh each aspect against your financial objectives before deciding to invest in either of the two instruments i.e., KVP vs. NSC.
What is the NSC Scheme?
National Saving Certificate (NSC) scheme is a fixed-income investment scheme that you can open at any post office in India. It is a savings bond with an objective to encourage beneficiary subscribers – primarily those belonging to the lower to medium income categories. This scheme encourages the habit of savings among investors and also offers tax benefits. Below are some of the most distinguishing features of the NSC scheme:
- The scheme comes with a lock-in period of five years. While the current interest rate is 6.8% per annum, the government updates the rates periodically.
- The interest rate is fixed at 7, compounded annually.
- You must invest a minimum of Rs. 1,000 to start.
- There is no limit on the maximum NSCs you can purchase or the amount you invest in one plan. However, only investments up to Rs. 1,50,000 ate eligible for tax deductions under Section 80C of the Income Tax Act.
- Under the scheme, a joint account can be opened, enlisting up to three individuals per account.
- The lock-in period for the scheme is five years, and premature withdrawals are allowed only under specific conditions such as the death of the account holder, by court order, and On forfeiture by a pledgee being a Gazetted officer.
- In addition, if one of the account holders of a joint account dies, the account can be closed.
- An NSC account can be transferred from one individual to another under certain conditions, such as:
- The death of an account holder.
- The untimely demise of any account holder in a joint account.
- By order of the court.
- The pledging of account closure by relevant authorities, such as the Reserve Bank of India (RBI), scheduled banks, housing financial firms, local authorities, and others.
- Minors above ten years of age can open an NSC account in their name.
- The investment in an NSC scheme can be used as collateral for availing of loans.
Lastly, if you compare NSC vs. KVP, the investments in KVP are taxable, with no tax exemptions, unlike NSC.
What is the KVP Scheme?
KVP, short for Kisan Vikas Patra, is a government-backed savings instrument that aims to encourage long-term investment.
Initially introduced in 1988 and successfully running for two decades, it was later discontinued in 2011 after a government committee suggested that KVP could be used for money laundering. In 2014, the Government of India re-launched the scheme with changes that included mandatory PAN card submission for investments over Rs. 50,000 and proof of income source for investments crossing Rs. 10,00,000. Let us now understand the KVP by looking at its key features.
- The interest rate offered in the KVP scheme is 7.2% per annum. It remains the same throughout the tenure. Furthermore, the interest is compounded annually.
- The investment tenure for the scheme is ten years . The investment doubles after the completion of this tenure.
- One of the striking similarities, when you compare NSC vs. KVP is that both schemes have a minimum investment mandate of Rs. 1,000, with no limit set for the maximum investment.
- The lock-in period for KVP is two years and six months (30 months).
- You can withdraw prematurely after the completion of 30 months from the date of investment.
- Premature withdrawals or account transfers from one individual to another are allowed under specific conditions, such as:
- The death of the account holder.
- The demise of the account holders in a joint account.
- By order of a court.
- Pledge by a Gazetted officer for the account’s closure.
- Minors above ten can open a KVP account in their names.
- Parents or legal guardians can open an account on behalf of a minor or an individual of an unsound mind.
- KVP investments can be used as collateral for securing loans.
NSC vs. KVP: Key Differences
As you compare NSC vs. KVP to know which works best for you, you need to consider the following parameters:
|Investment Tenure||Five years (60 months).||Ten years .|
|Minimum and maximum investment limits||The minimum investment limits are Rs. 1,000, but there is no limit on maximum investment.||The minimum investment limit is Rs. 1,000, with no limit set on maximum investment.|
|Premature withdrawal||is Allowed under specific conditions.||Allowed under specific conditions and after completion of two years and six months (30 months) from the investment date.|
|Tax benefits||Tax exemptions on investments up to Rs. 1,50,000 are allowed.||No tax exemptions.|
|Transfer of account||Allowed under specific conditions.||Allowed under specific conditions.|
|The Lock-in period||Five years (60 months).||Two years and six months (30 months).|
|Limit on the number of accounts||No limit. Multiple accounts are allowed.||No limit. Multiple accounts are allowed.|
Which is better, KVP or NSC?
Kisan Vikas Patra and National Savings Certificate are good choices for investors seeking safe fixed income. The interest rates are also nearly identical. However, the following are some pointers to help investors choose the best KVP vs. NSC scheme:
- You should select the National Savings Scheme if:
you want to save money on taxes under the Income Tax Act; suppose your investment horizon is less than five years if you are willing to lock your money away for five years.
- You should prefer Kisan Vikas Patra if:
You want to invest in a low-risk investment option that guarantees a double return at maturity. In the case of KVP, lock-in is 2.5-year rather than a 5-year lock-in of NSC.
Which scheme offers tax-saving benefits – NSC or KVP?
For saving taxes on investments, you should choose the NSC scheme, as you can gain tax exemptions on investments up to Rs. 1,50,000. On the other hand, there are no tax exemptions on investments in the KVP scheme.
Which scheme should I choose – NSC or KVP – to avail higher interest rate?
The interest rate for KVP is marginally higher than NSC. The KVP interest rate is 7.2%, whereas it is 7% in the case of NSC.
Which scheme is better, NSC and KVP, if I need to withdraw funds urgently?
The lock-in period for NSC is five years, which is way broader than the KVP lock-in period of two years and six months. Hence, NSC works great for those with surplus money, whereas KVP could be the ideal choice if you cannot afford to have your money parked in a long-term scheme.
Can my NSC or KVP accounts be transferred from my name to somebody else’s?
NSC and KVP offer the facility of account transfer from one individual to another under the following conditions:
-Death of an account holder or any of the joint holders in a joint account,
-The order of the court.
-Pledging of account closure by the relevant authorities such as the Reserve Bank of India (RBI), scheduled banks, housing financial firms, local authorities, etc.
Which scheme among NSC and KVP will allow me to use my investment as collateral against loans?
NSC and KVP will allow you to utilise your investment as collateral against loans. Depositors can pledge their investment certificates under NSC and KVP as securities for securing loans from public sector banks.
Vaibhav is Chartered Accountant by profession, having experience of 4+ years in banking & finance sector.
Since past one year associated with Wint Wealth as Credit Principal. Previously worked with Northern Arc Capital for 2 years in FI-Credit Team and AU Small Finance Bank for 1 year in LAP-Credit Team.