Kisan Vikas Patra
Also written KVP
A government-guaranteed post office certificate that doubles the amount invested over a fixed term — 124 months in the workbook — with no tax incentive and interest taxed on accrual.
In plain language
The KVP is the simplest promise in the small savings family: put money in, and it doubles. There is no periodic interest; the growth compounds inside the certificate and is paid as the maturity value.
It is sold at departmental post offices and banks, for cash, local cheque or demand draft, and it carries the guarantee of the Government of India on both principal and return.
For a retirement adviser it is an accumulation product, with one discipline attached: the proceeds must be reinvested on maturity or the money stops growing.
How it works
Who may buy. An adult for self. For a minor, Chapter 6 says two adults; Chapter 2 says an adult. NRIs, HUFs and other entities are not eligible.
Denominations. Rs 1,000, Rs 5,000, Rs 10,000 and Rs 50,000. Minimum Rs 1,000, no maximum.
Tenor. The amount doubles in 124 months, a figure the workbook footnotes as calculated at 7.7 per cent, subject to change.
Liquidity. Premature encashment 2½ years from the date of issue. Transferable person to person and post office to post office, by endorsement and delivery.
Tax. No tax incentive on the investment. Interest is taxed on an accrual basis. No TDS.
| Feature | KVP | NSC |
|---|---|---|
| Term | Doubles in 124 months | 5 years |
| Deduction on investment | None | Yes, old regime |
| Premature encashment | After 2½ years | Only on death, forfeiture by pledgee, or court order |
| Transfer | By endorsement and delivery | With consent of post office official, specified cases |
A worked example
Ramesh, 45, buys KVPs of Rs 50,000 for his retirement at 60.
Maturity value = 50,000 × 2 = Rs 1,00,000
Term = 124 months = 10 years 4 months
The rate the 124 months actually implies:
(1 + r)^(124/12) = 2
r = 2^(12/124) − 1 ≈ 6.94% a year, compounded annually
Tax on accrual. He pays tax each year on interest he has not received. On roughly Rs 50,000 of interest over the term, at a 20 per cent rate (illustrative), about Rs 10,000 of tax goes out of his pocket before any cash comes in — which is the practical meaning of "taxed on accrual, no TDS".
Reinvestment. At 55 years 4 months the certificate matures. Retirement is still 4 years 8 months away. If the Rs 1,00,000 sits in a savings account, it loses the compounding that justified buying the KVP. The workbook's instruction is to reinvest so the funds keep growing till retirement.
Why NISM asks about it
Chapter 2, section 2.10.4 (Small Saving Instruments), lists the KVP; Chapter 6, section 6.2.1 (Accumulation Stage Products), profiles it on the standard headings — eligibility, nature, tenor, return, risk, denominations, liquidity, tax and suitability for accumulation. Expect recall of the 124-month doubling, the 2½-year premature encashment, the denominations, the NRI/HUF exclusion, and the absence of any tax incentive.
Common exam traps
- The 124 months and 7.7 per cent in the footnote do not reconcile. At 7.7 per cent compounded annually, money doubles in about 112 months; 124 months implies about 6.94 per cent. Learn 124 months as the workbook figure, and treat the rate as subject to change, as the footnote itself says.
- Chapter 2 and Chapter 6 differ on buying for a minor — "an adult" versus "two adults".
- No deduction on the investment. Unlike the NSC, the PPF and the 5-year POTD, the KVP carries no tax incentive at all.
- Interest is taxed on accrual, with no TDS.
- Premature encashment after 2½ years — not 3, not 5.
- NRIs and HUFs cannot invest.
- No maximum investment. The minimum is Rs 1,000.
Check yourself
1.Which statement about the Kisan Vikas Patra (KVP) is correct according to the workbook?
- a)Investment in KVP qualifies for deduction under section 123 read with Schedule XV (section 80C of the 1961 Act)
- b)The amount invested doubles in 124 months at the stated rate; it can be encashed prematurely 2½ years from issue; there is no tax incentive and the interest is taxed on accrual
- c)KVP can be bought by HUFs and NRIs as well as individuals
- d)KVP pays interest out annually to the holder's savings account
Show the answer
Answer: (b) The amount invested doubles in 124 months at the stated rate; it can be encashed prematurely 2½ years from issue; there is no tax incentive and the interest is taxed on accrual
Tenor: "The amount invested DOUBLES IN 124 MONTHS" — footnoted as "calculated as per the rate of interest of 7.7 percent, this rate is subject to change."
Liquidity: "KVP can be PREMATURELY ENCASHED 2½ YEARS FROM THE DATE OF ISSUE." It can be transferred from one person to another and one post office to another by endorsement and delivery.
Tax: "THERE IS NO TAX INCENTIVE for the investment made and the INTEREST EARNED IS TAXED ON ACCRUAL BASIS. There is no tax deducted at source."
Why the others are wrong:
- No section 123 / 80C benefit — that belongs to NSC, PPF, the 5-year POTD and similar products.
- "NRIs, HUFs and other entities are NOT ELIGIBLE to invest in the KVP." It can be bought by an adult for self or by two adults for a minor.
- "There is no interest paid out to the investors and instead it is compounded in the investment and reflects in the maturity value."
Where this is taught
Free preparation for NISM Series SEBI-ICERelated terms
- Public Provident FundA 15-year government-guaranteed savings account for individuals, at a rate reset quarterly, where the contribution, the interest and the maturity value are all outside tax under the old regime.
- National Savings CertificateA 5-year, government-guaranteed post office certificate with annual compounding paid at maturity, a Rs 1,000 minimum, no maximum, and an old-regime deduction on the investment.
- Post Office Time DepositA government-guaranteed post office deposit of one, two, three or five years with a Rs 1,000 minimum and no maximum, of which only the five-year deposit qualifies for a tax deduction.
- Compound interestInterest earned on the original amount and also on the interest already earned. Rs 1,000 at 9% grows to Rs 31,409 in 40 years compounded, against Rs 4,600 with simple interest.
- Deep Discount BondA zero-coupon bond of very long tenure, issued at a steep discount to its face value and redeemed at par. IDBI issued such bonds; the Kisan Vikas Patra is another example.
- Sukanya Samriddhi YojanaA Government savings scheme for a girl child, opened by a guardian when she is 10 or younger. Deposits qualify under Section 80C; partial withdrawal for education or marriage is allowed after 18.
- Mahila Samman Savings CertificateA two-year small savings certificate for women and girls at 7.5 percent compounded quarterly, capped at Rs 2 lakh, whose enrolment window ran from April 2023 and closed on 31 March 2025.