New Kisan Vikas Patras
may fail to generate
investors' interest
investors' interest
NEW DELHI: The new
Kisan Vikas Patra (KVP) has been launched with much fanfare but experts doubt
if they will generate interest among urban investors. "There are many
fixed-income products that offer higher returns compared to these new
KVPs," says Delhi-based tax consultant Surya Bhatia.
The Public Provident
Fund (PPF), for instance, offers 8.7% tax-free returns. But the interest earned
on KVPs is fully taxable, so the post-tax return for someone earning more than
Rs 10 lakh a year gets pared down from 8.7% to a niggardly 6% (see table). The
only difference is the Rs 1.5 lakh annual investment limit in the PPF. There is
no upper limit for investments in the KVPs.
Senior citizen investors should also stay away from these re-launched instruments. They can get 25-30 basis points higher interest on bank deposits. Besides, the Senior Citizens' Savings Scheme offers them 9.2% as well as tax benefits under Section 80C. The post-tax returns in the 30% bracket work out to 35 basis points higher than what KVPs offer. The only disadvantage is the Rs 15-lakh investment limit per individual in the Senior Citizens' Saving Scheme.
Financial planners say
the new KVPs should appeal to the unbanked population in rural areas. Cheque
books and bank accounts are not necessary and investments and the maturity
amount can be in cash. "The rural population will find these products
useful. But these KVPs are irrelevant for urban investors who have access to
regular banking," says Pankaaj Maalde, head of financial planning,
Apnapaisa.com.
However, the
acceptance of cash doesn't mean these instruments can be used for money laundering.
The government has clarified that investors will have to comply with KYC rules
applicable to other small savings schemes of the post office.
KVPs can be
transferred to another person any number of times. Though this will improve
liquidity, financial planners fear that financially-illiterate investors might
lose out if they miscalculate the accrued interest and sell the bonds at a
discount.
PSU tax-free bonds
traded in the secondary debt market offer a better deal to investors because
the price factors in the interest accrued till that day. These tax-free bonds
are offering a better post tax yield of about 7.2% right now. Besides, there is
also the possibility of capital gains if interest rates are cut.
For more evolved
investors, fixed maturity plans and debt funds can be the best way to invest in
debt. The returns after indexation can be significantly higher than what these
KVPs are offering.
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