Now that we have had a refresher course in what each of the savings schemes actually does, let’s take a look at how each of these stack up against each other in comparison of features.
National Savings Certificates
Offering more returns over a sizably longer investment period, these are stable financial instruments that have added tax benefits.
- Rate of Interest – As mentioned above, these instruments offer rates of interest ranging from 8.5% to 8.8% per annum, calculated every six months, bringing the effective rate to somewhat around 9% per annum
- Financial Liquidity – Mandatory lock-in periods of either 5 years or 10 years make these investment schemes a choice for a long-term goal, rather than something in the near future. Consequently, 10-year NSCs pay out better than 5-year ones
- Taxable returns – NSC VIII issue mandates that returns will be taxable, while the newer NSC IX that is currently available is tax-free. The returns enjoy tax exemption as under Section 80C of the IT Act, making the effective returns through NSC even higher
- Premature withdrawal of funds – NSCs give a hard time when it comes to withdrawing investments before the maturity of 5 years or 10 years is done. Only under cases of the demise of the account holder, forfeiture of the account by a gazetted officer or by order of law is this possible
- Loans – Having lock-in periods of 5 years and 10 years and being stable financial instruments, NSCs can easily be used as collaterals for availing loans for vehicles, housing and other secured loans
- Investment Security – Provided by the Government of India, NSCs offer rates that rarely change in a major way and are the safest possible investment one can make in India
Kisan Vikas Patra
A relatively newer savings scheme offered through the postal savings schemes, this came into being to encourage the habit of investment among rural folk and offers double the initial investment at the time of maturity.
- Rate of Interest – These financial instruments offer a singular rate of interest at 8.7% per annum. Coming close to the advertised rate offered by NSC, KVP is a scheme that is better than most other savings schemes
- Financial Liquidity – With a mandatory lock-in period of only two and a half years, one can easily revert to KVP funds in case of any need in the immediate future. The returns obtained after 2.5 years of investment will be by far lesser than what they could have been at maturity
- Taxable returns – The returns on Kisan Vikas Patra investments are taxable. There is no workaround to that
- Premature withdrawal of funds – Closing a KVP investment by premature withdrawal of funds is allowed, although the advertised rate of return will only hold good if the investment is honored for a period of 8 years and 4 months
- Loans – Kisan Vikas Patra investments are as stable financial instruments as NSCs and can easily be used as collaterals for availing loans for vehicles, housing and other secured loans. Better rates can be availed on loans if investments are pledged with banks that offer schemes for the rural population
- Investment Security – Being in the same league as NSCs, KVP investments also have a similarly high degree of security when it comes to the invested money
