NSC Vs KVP: Which Can Be A Smart Bet In The Context of Good Returns?

National Savings Certificate is released by the Government of India and comes under the small savings schemes category. The Indian Postal Service provides Kisan Vikas Patra and is approved by the Reserve Bank of India. Unlike KVP, NSC provides tax advantages. Both NSC and KVP are initiatives implemented by the Govt of India to help risk-averse investors to reap guaranteed returns to create wealth. The NSC, known as the National Saving Certificate, is an investment pool that includes both assured returns and tax benefits. Whereas the government is also supporting both schemes, there are many gaps if we compare both these schemes. In the case of NSC, NSC can only be obtained by people living in India. Investment in NSC is not available for trusts, Hindu undivided families (HUFs), and non-resident persons (NRIs). Additionally, with regard to KVP, citizens and trust can both invest in this investment vehicle. HUFs and NRIs, however, are also unable to invest in this scheme. Well, let us consider the variations in respect of interest rate, investment tenure, and other factors between both NSC and KVP.

National Savings Certificate

National Savings Certificates, officially shortened as NSCs, are tools issued under the Small Savings Schemes category by the Government of India. NSC certificates can be purchased by an adult on his or her behalf, on behalf of a minor, a trust and only two adults from any postal office in India.

Key benefits of National Savings Certificate

These are stable financial vehicles that have additional tax benefits, providing higher return over a considerably longer investment period. Some of the other benefits of NSCs are as follows:

Rate on interest: Currently for the quarter of March 21 the interest rate of 5-Years NSC is capped at 6.8 % which is compounded annually but payable at maturity.
Tenure: The investment period is 5 years and during the tenure, individuals can not withdraw their capital. Here, along with the interest at the completion of the duration individuals obtain the interest amount.

Min and Max deposit limit: To purchase a certificate one can deposit a minimum amount of Rs 1000/- and in multiples of Rs. 100/- with no upper limit.

Taxation: Under 5 Years National Savings Certificate (VIII Issue) an individual can seek tax deduction under section 80C of Income Tax Act.

Premature withdrawal: NSC can not be closed prematurely before the completion of the maturity period. Premature withdrawal facility is only allowed in the case of the demise of account holders or deprivation of a vow to be a Gazetted Officer and the court's direction.

Account transfer facility: NSC certificates can be transferred from one citizen to another or from one post office to another.

Kisan Vikas Patra

In short known as KVP, Kisan Vikas Patra is another secure investment vehicle under the list of small savings schemes of post office. Along with guaranteed returns KVP also gives you the following privileges:

Rate of interest: Currently for the quarter of March 21 the interest rate of Kisan Vikas Patra is capped at 6.9 % compounded annually.

Tenure: With a tenure of 124 months (10 years & 4​​​ months) the principal amount almost doubles.
Min and max deposit limit: One can open a KVP account by depositing a minimum amount of Rs. 1000/- and in multiples of Rs. 100/- with no upper limit.

Account opening criteria: One can open a KVP account individually, jointly (up to 3 adults) or on behalf of a minor.

Premature withdrawal: KVP can be closed prematurely at any period before completion of maturity but on the death of account holders, dismissal by an undertaking to be an officer of the Gazette, by permission of the court, or 2 years and 6 months after the date of account opening.

Account transfer facility: KVP account can be transferred from one individual to another or from one post office to another but under some limited conditions.

Our take

It can also be seen from the above comparisons that both NSC and KVP have some variations by comparing them to each other. That being said, individuals are always advised by us to be cautious when choosing investment vehicles so that they can comfortably accomplish their goals. Investment is always a profitable idea for the financially smart, as an alternative for wealth creation. As both Kisan Vikas Patra and NSCs can be considered when it comes to risk-averse investors but if only we look at the interest rate KVP can be a good bet as it almost doubles your returns after the maturity period. Although most risk-averse investors are searching for FD schemes, many have also begun to search for substitute conservative investment vehicles. Small savings schemes of the post office are now providing better returns relative to bank FDs for such investors. In addition, since they are funded by the Government of India, these saving schemes are deemed to be safer investment solutions.