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NSC Vs KVP

17 February 2025

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Are you looking to invest but are confused between the National Savings Certificate (NSC) and Kisan Vikas Patra (KVP)? Both are popular government-backed saving instruments in India, offering secure ways to grow your savings. But how do they differ, and which one suits your financial goals better? Let’s dive into the details of NSC and KVP to help you make an informed decision.

What is a National Savings Certificate (NSC)?

The National Savings Certificate (NSC) is a fixed-income investment scheme that you can open with any post office in India. It's a savings bond that encourages subscribers, mainly small to mid-income investors, to invest while saving on taxes. NSC comes with a fixed tenure of 5 years, and the interest earned is compounded annually but payable at maturity. One of the key attractions of NSC is its eligibility for tax deduction under Section 80C of the Income Tax Act, making it a favourable option for tax-saving purposes. The government periodically declares the interest rate, ensuring a guaranteed# return on your investment.

What is Kisan Vikas Patra (KVP)?

Kisan Vikas Patra (KVP) is another time-tested small savings instrument offered by the Indian Postal Service. It aims to double your investment over a fixed period, previously around 124 months (approximately 10 years and 4 months), though the exact tenure can vary with changes in the interest rate set by the government. Unlike NSC, KVP is not eligible for any tax benefits* under Section 80C, making it purely an investment product without any tax-saving advantage. KVP can be purchased by any individual (not just farmers, despite its name), and it offers a secure and predictable way to grow savings with the government’s backing.

Both NSC and KVP are solid options if you're looking for safe investment avenues. However, choosing between them would depend on your investment horizon, need for tax savings, and whether you're looking for a cumulative investment option (NSC) or a scheme that promises to double your investment (KVP).

NSC vs. KVP: Key Differences

Feature	National Savings Certificate (NSC)	Kisan Vikas Patra (KVP)
Purpose	Primarily for small to medium-income investors looking for safe investment options with tax-saving benefits.	Aimed at investors looking to double their investment over a fixed period, without any tax benefits.
Tenure	Fixed at 5 years.	Varies; approximately 124 months (10 years and 4 months) as per current interest rates, subject to change.
Interest Rate	Interest rates are declared by the government periodically and are compounded annually but payable at maturity.	Interest rates are set by the government. The investment matures when it doubles, with interest compounded annually.
Tax Benefits*	Investments are eligible for tax deduction under Section 80C of the Income Tax Act. The interest earned is also tax-efficient as it is added to the principal and qualifies for deduction under 80C (within the overall limit).	No tax benefits* are available for investments in KVP. The interest earned is fully taxable.
Investment Limit	No maximum limit for investment, but tax benefits* are capped under Section 80C.	No upper limit on the investment amount.
Risk	Government-backed, hence carries a very low risk.	Also government-backed and carries very low risk.
Liquidity	Premature withdrawal is possible under specific conditions like the death of the holder, court order, etc., after 1 year.	Can be encashed after 2 years and 6 months from the date of issue with certain conditions.

What Are The Features of a National Saving Certificate (NSC)?

● Guaranteed# Returns: The government sets the interest rates, ensuring a safe and predictable investment.
● Compounded Interest: Interest is compounded annually but payable at maturity, contributing to a higher effective yield.
● Tax Efficiency: Qualifies for a tax deduction under Section 80C. The accrued interest that is reinvested annually is also eligible for tax deduction under Section 80C, within the overall limit.
● Accessibility: Can be purchased from any Post Office in India, making it easily accessible to investors across the country.
● Minimum Investment: The minimum investment amount is quite low, making it accessible to small investors.
● Nomination Facility: Offers the option to nominate someone to receive the investment in the event of the investor's death.

What Are The Features Of a Kisan Vikas Patra (KVP)?

● Objective to Double Investment: The scheme promises to double the investment amount by the end of the tenure.
● No Tax Benefits*: The interest earned and the maturity amount are fully taxable, with no tax deductions available.
● Fixed Interest Rate: Comes with a government-guaranteed# interest rate, with the tenure determined based on the prevailing rate at the time of purchase.
● Liquidity: Offers relatively better liquidity with options for premature encashment after 2 years and 6 months, subject to certain conditions.
● Ease of Purchase: Available at Post Offices and some authorised banks, providing widespread accessibility.
● Transferability: KVP certificates can be transferred from one person to another and from one post office to another.
● No Maximum Limit: Investors can invest any amount in KVP, with no upper ceiling, making it suitable for lump-sum investments.

Which is Better, KVP or NSC?

Choosing between Kisan Vikas Patra (KVP) and National Savings Certificate (NSC) depends on your financial goals, need for tax benefits*, and investment timeline. Here's a comparison to help you decide which might be better for your specific situation:

Criteria	KVP	NSC
Investment Objective	Suitable for investors looking to double their investment without concern for tax benefits*.	Best for investors seeking a safe investment avenue with the added advantage of tax savings.
Risk Factor	Very low risk as it is a government-backed scheme.	Very low risk, government-backed, ensuring the safety of capital.
Returns	Designed to double the investment at a fixed period, offering a clear return expectation.	Offers competitive interest rates, compounded annually, which are taxable but also eligible for tax deduction, enhancing effective returns.
Tax Benefits*	No tax benefits* on the principal or interest.	Investments up to ₹1.5 lakh qualify for deduction under Section 80C. The interest earned is compounded and reinvested, and thus, also qualifies for Section 80C benefits annually, within the overall limit.
Liquidity	Can be encashed after 2 years and 6 months with certain conditions, offering moderate liquidity.	Premature withdrawal is more restricted and generally allowed only in case of the account holder’s death, making it less liquid than KVP.
Tenure	Fixed period, currently around 10 years and 4 months, but varies with interest rates.	Fixed tenure of 5 years, offering a shorter investment horizon.
Minimum Investment	Flexible, allowing for a wide range of investment amounts with no upper limit.	Also accessible with a low minimum investment requirement, but with a focus on tax saving, the effective maximum investment is guided by the 80C limit.

Conclusion

Both KVP and NSC stand out as robust government-backed savings schemes, each with its unique benefits. If your primary goal is to double your investment without the necessity for tax deductions, KVP offers a straightforward, long-term saving option. On the other hand, NSC could be more appealing if you're looking for a safe investment avenue with the added advantage of tax savings, especially beneficial for those in the higher tax brackets seeking to reduce their taxable income.

Ultimately, the choice between KVP and NSC should align with your financial goals, risk tolerance, and investment horizon. Whether you prioritise tax savings with NSC or prefer the straightforward growth potential of KVP, both schemes offer the security of a government-backed investment, making them valuable components of a diversified savings portfolio.

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FAQs - NSC vs KVP

Which scheme offers tax-saving benefits – NSC or KVP?

NSC (National Savings Certificate) offers tax-saving benefits. Investments made in NSC are eligible for a deduction under Section 80C of the Income Tax Act, up to a limit of ₹1.5 lakh per financial year. The interest earned on NSC is also compounded annually and is taxable but effectively reinvested and qualifies for the same Section 80C deduction. KVP (Kisan Vikas Patra), on the other hand, does not offer any tax-saving benefits; neither the amount invested nor the interest earned is eligible for tax deductions.

Which scheme should I choose – NSC or KVP – to avail higher interest rate?

The interest rates for both NSC and KVP are determined by the government and are subject to periodic revisions. Generally, both schemes offer competitive interest rates compared to other fixed-income investments. The choice should be based not solely on the current interest rate but also your investment horizon, need for tax savings, and financial goals. It's advisable to check the latest rates and calculate the potential returns based on your investment amount and tenure before deciding.

Which scheme is better, NSC or KVP, if I need to withdraw funds urgently?

If there's a possibility you'll need to withdraw funds urgently, KVP might be a slightly better option since it allows for premature withdrawal after 2 years and 6 months. NSC, while offering a safe and tax-efficient saving option, is less flexible in terms of liquidity, as it generally doesn't allow for premature withdrawals except in specific cases like the account holder's death.

Can my NSC or KVP accounts be transferred from my name to somebody else’s?

NSC accounts can be transferred from one person to another during their tenure under specific circumstances. However, such transfers are subject to the rules and regulations prescribed by the post office. KVP certificates can also be transferred from one person to another but only once from the date of issue to the date of maturity. Both transfers are subject to certain conditions and require the completion of prescribed procedures at the post office or issuing authority.

Which scheme between NSC and KVP will allow me to use my investment as collateral against loans?

Both NSC and KVP can be used as collateral against loans. These government-backed securities are considered reliable and secure, making them acceptable to banks and financial institutions as collateral for securing loans. The process involves pledging the NSC or KVP certificates with the lender until the loan is repaid. However, the terms and acceptance may vary depending on the lender’s policies.

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