NSC or KVP: Which is better for your long-term savings?
What's the story
The National Savings Certificate (NSC) and the Kisan Vikas Patra (KVP) are two popular investment options for long-term savings in India. Both schemes come with government backing, making them safe bets for risk-averse investors. While NSC is ideal for fixed returns over a certain period, KVP doubles the investment amount in a fixed tenure. Here's a look at their features to help you make an informed decision.
#1
Understanding NSC's fixed returns
The National Savings Certificate is a fixed-income investment scheme that offers a predetermined interest rate. The current interest rate for NSC is 7.7% per annum, compounded annually. The minimum investment amount is ₹1,000, with no maximum limit. The maturity period of NSC is five years, after which you get the principal amount along with the interest earned over the period.
#2
KVP's unique doubling feature
Kisan Vikas Patra is known for its unique feature of doubling the investment amount in a fixed tenure. The current maturity period for KVP is approximately 124 months, or about ten years and four months. The minimum investment amount is ₹1,000, with no upper limit. However, unlike NSC, KVP does not pay interest periodically but rather returns the principal doubled at maturity.
#3
Tax implications and benefits
Both NSC and KVP come with tax benefits under Section 80C of the Income Tax Act, but they differ in other aspects. The interest earned on NSC is taxable every year even though it qualifies for deduction under Section 80C up to ₹1.5 lakh per financial year. On the other hand, KVP does not pay periodic interest; hence, there are no annual tax liabilities until maturity.
Tip 1
Liquidity considerations for investors
Liquidity is another factor to consider when choosing between NSC and KVP. NSCs can be encashed prematurely after a minimum of one year from purchase, subject to certain conditions, including a penalty on interest earned to date. Meanwhile, KVP allows premature encashment after two and a half years but only at specific intervals, with applicable penalties on the returns received.