Kisan Vikas Patra v/s PPF: Which is a better investment?
What's the story
Investors in rural India frequently weigh the options between Kisan Vikas Patra (KVP) and Public Provident Fund (PPF) when looking for secure investment avenues.
Both are government-backed schemes, providing safety and decent returns.
This article delves into the key features, advantages, and how KVP differs from PPF, assisting investors in making educated choices.
Basics
Understanding Kisan Vikas Patra
The Kisan Vikas Patra is a small savings instrument that guarantees to double your investment over a fixed period.
Currently, it requires around 124 months (10 years and four months) to double the investment.
The scheme is offered at post offices throughout the nation, ensuring easy access for rural investors.
The minimum investment is ₹1,000, and there is no maximum limit.
PPF overview
Public Provident Fund explained
The Public Provident Fund provides a secure investment option with appealing interest rates and tax advantages under Section 80C of the Income Tax Act.
The maturity duration for a PPF account is 15 years, with the option to extend it in five-year blocks.
The present interest rate is approximately 7-8%, but the government revises it periodically.
The minimum yearly investment is ₹500, and the maximum is ₹150,000 per annum.
Returns & liquidity
Comparing returns and liquidity
KVP vs PPF: Apples and oranges, really
If KVP aims to double your investments in a stipulated time sans tax benefits, PPF offers the advantage of compounded, tax-free returns upon maturity.
You can make partial withdrawals from PPF after six years; KVP can be encashed post two years and six months with a penalty.
Taxation
Tax implications simplified
A key distinction between KVP and PPF lies in their tax treatment.
KVP interest is fully taxable at the investor's income tax slab rate, and there are no deductions available for investments made.
In contrast, PPF has EEE status. Contributions are deductible under Section 80C, interest earned is tax-free, and withdrawals upon maturity are also exempt from income tax.
Goals alignment
Investment goals alignment
The choice between KVP and PPF depends on an investor's objectives, risk appetite, and time horizon.
KVP is suitable for short-term investors looking for guaranteed returns without the need for tax benefits.
On the other hand, PPF is beneficial for individuals looking for long-term wealth accumulation with tax benefits. It provides the advantage of compounded, tax-free interest over the years.