NSC vs KVP: Which One is Better for You?
Do you wish to save for your future but are unsure about which one to choose between NSC vs KVP? Both National Savings Certificate (NSC) and Kisan Vikas Patra (KVP) are savings schemes that are backed by The Government of India. Currently, NSC offers an interest rate of 6.8% p.a. on your investment while KVP offers 6.9% p.a. However, while NSC provides the benefits of both investment and tax deduction, KVP does not offer tax deduction advantages.
Let us delve into more details to help you choose the most suitable option among the two.
What is National Savings Certificate (NSC)?
National Savings Certificate (NSC) is a scheme of fixed income investment. The government of India introduced it to encourage lower as well as middle-income people to receive returns on investment along with tax deduction benefits.
It is similar to Post Office FDs and Public Provident Fund (PPF) because it is a low-risk and fixed-income scheme.
Previously, NSCs were obtained from banks and post offices. Now, NSCs are also recorded via e-mode or Passbook mode. As a result, they can be acquired from all Public Sector Banks and the top three private banks, i.e., ICICI Bank, HDFC Bank and Axis Banks.
What is Kisan Vikas Patra (KVP)?
Kisan Vikas Patra (KVP) is a safe savings scheme offered by GoI and regulated by post offices across the country. It was designed primarily to encourage low and middle-income investors in rural and semi-urban areas.
The government utilises the money raised through the KVP scheme for farmers’ welfare. Therefore, this scheme plays a vital role in agricultural development of India.
KVP accounts can be categorised into 3 types- Single-holder accounts, Joint A, and Joint B accounts. It should be noted that only resident Indians can invest in Kisan Vikas Patra.
Features and Benefits of NSC
The features and benefits of NSC are enumerated below:
- Types
NSCs initially were of two types- NSC VIII Issue and NSC IX issue. The government discontinued NSC IX issue in 2015. Right now, only NSC VIII is available for subscription.
- Fixed income and tax saver
Investors are guaranteed to get fixed returns that are higher than that of FDs. Moreover, it is an excellent tax-saving opportunity because Section 80C of the IT Act allows individuals to claim tax deductions upto Rs. 1.5 lakh for investment in NSC.
- Small investments
People wary of investments can start with the minimum amount of Rs. 1,000 and increase the amount as per their convenience.
- Rate of interest
GoI fixes and revises the interest rate for NSC every quarter. Currently, the NSC rate of interest stands at 6.8% per annum.
- Easy access
After submitting the required documents, one can easily obtain NSC from nationalised banks and post offices. Transferring the NSC from one post office/bank branch to another is not difficult.
- Corpus amount after maturity
Investors can receive the entire maturity value after the maturity period. However, they are required to pay applicable tax as there is no provision of TDS (Tax Deducted at Source) on NSC payouts.
Features and Benefits of KVP
Given below are the features and benefits of Kisan Vikas Patra:
- Fixed returns
Government regulations guarantee KVP returns even if interest rate changes. However, if such an incident occurs, the tenure period might change depending on the interest rate.
- Investment flexibility
KVP certificates come in values of Rs. 1000, Rs. 5000, Rs. 10,000 and Rs. 50,000. There is no upper limit to the investment amount for KVP scheme. Investors can receive returns for their chosen amount or a combination of certificates at KVP interest rate.
- Rate of interest
GoI fixes and revises KVP interest rate. Currently, it is fixed at 6.9% per annum.
- Easy application and transfer
The application process is quite easy. Investors can apply for KVP certificates at any financial institution, including post offices. Now, application forms are available online as well. KVP certificates can be transferred easily from one financial institution to another or from one owner to another.
- Loan options
One can use the KVP certificates as collateral while applying for loans at any financial institution.
NSC vs KVP Comparison Table
The table below compares the basic features of both NSC and KVP:
| Features | NSC | KVP |
| Rate of Interest | 6.8% | 6.9% |
| Tenure | 5 years lock-in period | 30 months |
| Minimum Amount of Investment | Rs. 1000 | Rs. 1000 |
| Maximum Amount of Investment | None | None |
| Premature Closure/Withdrawal | Not allowed | Allowed after completion of 2 years 6 months from date of opening |
Tax Benefits of NSC and KVP
The tax benefits of NSC are as follows:
- People investing in NSC certificates are eligible for receiving tax deductions of up to Rs. 1.5 lakh as per the guidelines of Section 80C of the IT Act.
- If one invests in an Rs. 1,000 NSC certificate, he/she will receive a tax rebate for that initial amount in the first year.
- In the second year, he/she can seek a tax deduction for that year’s investment and the interest earned in the first year. The interest added to the original amount of investment gets compounded annually.
Given below are the tax benefits of KVP:
- Kisan Vikas Patra does not present any tax-saving opportunity for the investors.
- Section 80C of the IT Act does not offer tax benefits on KVP. But the interest earned is not subjected to TDS (Tax Deducted at Source).
Which is Better and for Whom?
Investors looking for low-risk and safe investment options can choose either National Savings Certificate or Kisan Vikas Patra, which have similar interest rates.
Given below are important points that would help investors make a decision.
Choose NSC if:
- You are looking for tax-saving opportunities
- You wish to invest for 5 years or less
- You have no problem with a fixed tenure of 5 years
Choose KVP if:
- You wish to invest in a low-risk investment option that assures double the maturity amount
- You prefer a smaller investment period
- You want a higher-liquidity option for withdrawing funds during an emergency
Final Words
To sum up, both NSC and KVP are GoI-backed schemes that promise fixed returns. But there are differences between NSC vs KVP. However, both these options encourage low and middle-income people to invest while availing of applicable tax benefits. Make sure to learn the differences between these two schemes to find out which one is suitable.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
FAQs on NSC and KVP
Ans: Given below is the verification procedure for NSC:
Step 1: You need to apply for internet banking at your post office /bank. After approval, you can easily access your NSC account online.
Step 2: You will receive an account number with which you can easily log in and verify your NSC certificate.
Ans. NSC has a lock-in period of 5 years. However, you can withdraw funds in the following instances:
I) If an account holder passes away
ii) If a court order dictates withdrawal/closure of the account
Ans. You can get your NSC ID from post office or bank. You can also open an online banking account through the login credentials that have been provided and check the details of your NSC account.
Ans. You will need to fill out the Form B to transfer your KVP certificate from post office to bank. The account holder should sign the application form except for a Joint A type certificate.
Ans. You will get a duplicate KVP certificate if you have misplaced the original. You need to visit the post office or the bank that issued the original and apply for a duplicate KVP certificate. After verifying the documents, the issuer will provide a duplicate KVP certificate.
