Coming to medium and long term debt mutual funds, the 5-Yr category average returns are somewherebetween (As on March 2010) 6 and 7 percent with some tax benefit due to tax arbitrage.Moreover,
when there are chances of increasing interest rates, it is very risky to invest in long term debt funds.So, due to above reasons, KVPs have started looking very attractive debt instrument offering relativelybetter returns without any risk.
In a nutshell, if you’ve completed your tax savings and are looking for a debt instrument offering
assured good returns combined with safety and liquidity then KVP is a good choice.
In other words, invest in KVP if you’re done with your tax saving investments and further exhausted
your PPF investment limit (including your spouse & children) but make up your mind that y
invested till the maturity because if you make a premature exit, your effective yield will beconsiderably lower (the facility of making an early exit can be exercised in an emergency by sacrificingsome returns).
o, you never gave a serious thought to Kisan Vikas Patra (KVP) as an alternative debt instrument
because you did think that it is only meant for farmers...Didn't you? I’ve also been so busy
“I have 3 Lakh to invest, how is Kisan vikas patra for mid/long term investment.”
Let me rephrase the question
Other than the tax-saving debt instruments available for investments (e.g. PPF, NSC, Bank FDs), which debt instruments can be regarded as good from medium to long term investment point of view?
Due to the current low-interest rate regime, small savings instruments have once again started lookingattractive. KVP is also a small saving instrument available at post offices offering a pre-tax return of 8.41% per annum (your money doubles in 8 years & 7 months).
1. Easy to purchase:
Available in denominations of Rs 100, Rs 500, Rs 1000, Rs 5000, Rs 10,000 and Rs50,000. No a/c opening hassles are involved. Just go to a post office fill a form, hand over the cash or
cheque / DD and you’re done. Further there is no limit as to number o
f KVP certificates you canpurchase or maximum amount you can invest.
2. Post-tax Yield:
The interest is taxable on annual basis (although no TDS is involved). The post-taxyield from KVP depends on the marginal tax rate that will be applicable to you.
3. Premature encashment
is possible just after 2.5 years (2 years & 6 months) but it is very costly