Comparison of KVP, NSC, PPF and Bank FDs

On 18th November 2014, Government of India launched Kisan Vikas Patra (KVP) with much fanfare. This is considered as safest investment. So let us understand the difference among KVP, NSC, PPF, and Bank FDs

In below image I simplified few features, which are very much important while investing.

Comparison of KVP, NSC, PPF and FDs

A Few points to be noticed-

  • You will get full details about Kisan Vikas Patra (KVP) in my recently published post “All about Kisan Vikas Patra (KVP)-2014“.
  • All above products have different tenure. So to be frank, the comparison will not hold good. I considered Bank FDs tenure as 10 years to make it comparable. In reality, you can deposit from 1 Yr to 10 Yrs in Bank FDs.
  • Interest varies, but I considered current interest rates. For Bank FDs, I considered SBI Bank rates.
  • For KVP and PPF, compounding is yearly. For NSC compounding is half yearly and Bank FDs quarterly compounding. Therefore, the effective rates for KVP and PPF will not change. However, in case of NSC-5 Yrs it will be 8.68%, NSC-10 Yrs it will be 8.99% and for Bank FDs 8.77%.
  • Regarding NSC interest taxation, please read my earlier post “NSC-Accrued Interest taxation and way to reduce it“.
  • Please note that KVP, NSC, or Bank FDs are one-time investments. Whereas in PPF you need to contribute yearly certain minimum and maximum amount, which is explained in my earlier post “All about Public Provident Fund (PPF)“.
  • In case of NSC, premature withdrawal allowed only if the death of certificate holder, on forfeiture by a pledge being a Gazetted Govt Officer or when ordered by a court of law. It applies to KVP too in case of early withdrawal before the lock in of 2 years and 6 months.
  • Please read my earlier post “PPF-Loan and Withdrawal“, for a better understanding of PPF withdrawal rules.

113 Comments

  1. sir can u confirm me that what is the difference between if i buy NSC direct from post office or there agents sitting in office.

    is there any commission cut from my investment or my return if i buy throw agents because he offer me that i give u half commission which i have received. Pls confirm thanks

    Reply
    • Dear Sanjeev,
      There is no difference for you. The agent’s commission will be compensated by Post Office.

      Reply
  2. I m investing 2000/month in sukanya samriddhi account since last 1 year, now I wants to increase this monthly amount, can I do and can I get benefit of this account scheme, pls suggest.

    Reply
  3. Hi Sir,

    Could you provide the updated comparison on this article with the latest interest rates and updates. If there is no change, that’s fine.

    Thanks,
    Sathya

    Reply
      • Thanks for the reply sir.

        Reply
  4. Hi sir,

    Please discuss about LIC VS NSC / PPF.

    Thanks in advance

    Reply
  5. Hi sir,
    Can you add ELSS also in the above comparison? and also please discuss about LIC VS NSC.

    Thanks in advance.

    Reply
    • Dear Sathya,
      You are trying to compare an apple with mango. ELSS are equity products. Hence, don’t compare them with debt products.

      Reply
      • Understood sir.. I am 27 and i am investing in 5 equity mutual funds through SIP. Planning to invest more and i don’t have much knowledge about other products. So, i thought of having all the features of all products at one place. Hence asked for it.

        Reply
        • Dear Sathya,
          Either you have to learn on your own or hire some planner if you are finding it difficult.

          Reply
  6. Good morning sir, I am retired Ex service man. My age is 40 Years. Please suggest some good plan so that I can get monthly income from the investment.

    Reply
    • Sandeep-You can use Postal MIS, LIC’s Jeevan Akshay or Pradhan Mantri Vaya Vandana Yojana.

      Reply
  7. Sir,

    1. Can I invest my money in National Savings Certificate (NSC) in my wife’s name who is a house wife? i.e; I will be issuing the cheque for buying NSC. Is it okay?
    2. Or should I necessarily transfer this money in her name and then she invests?
    3. Is there any Income tax rule that she has to purchase this NSC from her own income?
    4. What about the taxation? Will it be taxed on me or my wife when it matures?
    5. Is there any income Tax rule that the income will be clubbed to mine and taxed in my name?

    Reply
    • Vasavan-Better to use second option. There is no such rule that the money should be from her income to invest. You can transfer the money to her and she can invest. The tax benefit (under Sec.80C) will be applicable to you (as it is your income) and the income is taxed to you but not to your wife.

      Reply
      • Sir,

        When I gift my money to my mother, it is taxable on her, whereas when I gift it to my wife it is taxable on me. Why is it so?

        Reply
  8. I want invest 3000 per month or 36000 per year ( any one ). Which will be the best option for best return ( investment or insurance ) ?
    My age 34
    Want to invest 15 years to 25 years.
    Want tax savings.

    Reply
    • Amit-If your aim is to INVEST, then why you are running behind INSURANCE?

      Reply
      • I just want good secured return.
        Also I am state government employe.
        One of pli agent inform me if I invest 3000 (approx) monthly for 26 years then I will receive approx 26 lacks. With tax relaxation.

        I just want good secure tax free return.

        Reply
        • Amit-First rule-Never combines insurance and investment. Second rule-Never trust any advisers.

          Reply
  9. I am 60 years old. I have 60 lakhs in LIC Superannuation fund. I believe I can commute 1/3rd and have to choose a Pension plan for the rest ! What is the best pension plan among the ten offered by LIC ? I have no other financial burdens.

    Reply
      • 9. Type of Pension Option elected : ____________________________________________
        (Tick appropriate option)
        a. Life Pension
        b. Pension guaranteed for 5 yrs + life
        c. Pension guaranteed for 10 yrs + life
        d. Pension guaranteed for 15 yrs + life
        e. Pension guaranteed for 20 yrs + life
        f. Life pension with return of corpus
        g. Joint life pension with return of corpus
        h. Annuity for life increasing at a simple rate of 3% p.a.

        i. Annuity for life with a provision for 50% of the annuity payable to the spouse on death of the annuitant.

        j. Annuity for life with a provision for 100% of the annuity payable to the spouse on death of the annuitant.

        Reply
        • Puurnachand-Depends on your requirement. How can I say which is best suitable to you?

          Reply
  10. Hi,

    I am earning 50K per month. My monthly savings are 30k. Currently my age is 29years old. Where should I invest money. I have a 6 month old baby.

    Reply
    • Tarun-Planning can’t be done with mere 2-3 lines of sharing.

      Reply
      • thanks for quick n polite response. much appreciated.

        Reply
  11. Hi
    I am 55 yrs old with 1+ crore in bank. what are the best options for me to earn good amount for rest of my life with less /No risk. PPF/KVP/M Fund/ others
    Please Guide.
    God Bless you

    Reply
    • Raj-Postal MIS, SCSS, LIC’s Jeevan Akshay or Vaya Vandana Yojana.

      Reply
      • Hi dear
        I thought that i will invest in KVP for 9 years x 6 lacs = 54 lacs and start rerolling the money after 9 years. so i will have some 5+ lacs after tax deduction after 9 years for the rest of my life.

        rest of the money will be in different sections as suggested by you to earn 6 lacs every year for KVP investment and my expenses.
        any problem or flaw in this ?
        Regards & thanks for the reply

        Reply
        • Raj-Whether you considered the biggest enemy called INFLATION?

          Reply
  12. Hi Basu,

    Great article and perfect reply for the questions. I also have some below questions, but before that i would like to give you background of myself so that you can guide much better. I am working outside India since 2.5 years and having both NRE account and savings account. after reading the comments i have decided once i will go India i will close the savings account and open the NRO account. I am also having DEMAT acct and its linked with savings account. Below are some questions
    1) I have invested money in Mutul funds thru demat that linked with savings account. Is it illegal to hold the Mutual funds? If yes, then what can i do now?
    2) I want to invest money in equity also, how can i do that as i am NRI now?
    3) I want to invest in government schemes also such as NSC, KVP, etc, in which scheme i can invest?

    Thank you very much in advance.
    Regards,
    Arjeet Agarwal

    Reply
    • Ajeet-1) If while holding mutual funds, your status is Indian, then you must inform to mutual funds about your NRI status. If you hide this, then it is illegal.
      2) You have to open NRI demat account.
      3) Some are eligible and some not for NRIs.

      Reply
  13. Dear Basav

    I am a salried individual with a gross salary of 1.06 Lakhs per month. My age is 39 years 6 month. I have LIC for my family and myself for which I am paying Rs 75K per annum premium, along with that I have a PPF account which is 3 years old and having 75k.

    I want to invest Rs 2 Lakh for my Daughter who is 8 years old. Kindly suggest in which financial instrument I should invest? I am confused about weather to invest in Govt. Financial instruments or Private?

    Kindly suggest between Sukanya Samriddi a/c of Indian post ,NSC and KVP. Also if you think private players financial instruments is also good ,please suggest.

    Rgds

    Reply
    • Kuntal-Try to use PPF or Sukanya Samriddhi Account as debt product and rest invest in equity mutual funds. The ratio between equity to debt must be in the range of 60:40.

      Reply
  14. Hi,
    Is it better to invest in PPF or NSC ? I need to do for my tax savings. Is it possible to pay only once/every 6 months/every quarter of a year for PPF? Wats the advantage and disadvantage for both?

    Reply
    • Priya-Both products features are different. PPF is regular investment product with tenure of 15 years. However, NSC act like Bank FD with tenure of 5 years. But understand your requirement. You have to pay yearly, Half yearly, quarterly or monthly in PPF.

      Reply
  15. Hi sir,
    Thanks for enlightening article & your work.
    I am a 32 yr old farmer cum central govt employee with my gross salary is 70000/month. Presently my deductions are PPF 25000/month, PLI 9000/month, and since January 2016 I am investing 2500/month in HDFC Midcap & UTI Midcap equity for 15 yr plan each. My monthly expenses are 25000/- to 30,000/-.I got married in Dec 2015 & planning a child in 2017.
    I request you to kindly guide /suggest for the following
    1. Sir, I am planning to buy house in 2030, through bank loan. Should I buy house before so that I can save my tax deduction? Is my planning right?

    2. Sir, should I go for NSC to save tax?? Bcoz, for PPF only 1,50,000/- is upper limit.

    3. Will you suggest best investment plan for Rs 10,000/- per month, so that it will help to plan my child s education, my retirement and plan of buying a new house???

    Too many questions at one time, and I being a student of life sciences finding difficult to manage my financial planning.
    Sincerely thankful to you

    Reply
    • Theerta-Your few lines of sharing is not suffice to plan your whole life planning. It is more dangerous to you than to me to do such planning and if you implement it. Please understand the difficulty.

      Reply
  16. i have to invest 5000-7000 per month for my future requirement i.e after 50+, right now i have started investing in NSC per month for 5 yrs, is it ok, or shall i also start invensting in MUTUAL FUNDS also, is there any risk in any part, as it is my hard earned money i wanyt it to be invested properly, n no loss to be affected in it, and at the time of maturity it should be easilty available… pls reply..

    Reply
  17. Hello sir,
    I am 34 year base on ahmedabad, i want to invest 100,000 rs. but i am confused where i do the invest. nsc 5 yrs or kvp 8.4 yrs.but in this investment tds will deduct or not on interest. will i get in maturity money + interest or not pls.suggest.

    Reply
  18. Sir, I want save money for my children and in Canara Bank .so please tell me which one is better for me. I am working in railway please sir

    Reply
  19. Dear Sir:
    Suppose I open a 4 years RD in Bank..and pay online 10000 pm. After two month I get a job in Foregin..And will continue to pay 10000 every month by online for all 4 years..
    After maturity will be in any problem? how easy to claim my money? But every yr I will visit India..
    Thanks for your reply,
    Raj

    Reply
    • Raj-Once your status change to NRI, then banks first suggest to you close the savings account and RD. Because NRIs are not allowed to operate regular savings account

      Reply
      • How they come to know?? if it is illegal to do like that..I will direclt open a NRI RD ac/c!! Seems NRI a/c is good as no need to worry about tax on interest!!

        Reply
        • Raj-They check the cash deposits to the savings account. Now it is easy to question the customer. If you feel NRI RDs good then you can do so. But being an NRI, you are not allowed to operate regular savings account.

          Reply
          • Hello, Thanks for your reply. YOu mean that I cannot access my regular existing savings bank a/c (if I apply for a NRE a/c)?

            Reply
              • Hmmm…I sincerely thank you for your reply..It was really very helpful..let me not opnen an NRE a/c..
                Thanks again

                Reply
  20. Hi Sir,

    Could you please guide me as to where I should invest an amount of 1,00,000 (lump sum or monthly basis). I want to reap the return within 5-6 years. This is just for saving purpose.

    Thank you!

    Reply
  21. Hello,
    My salary is tax free (I receive fellowshop of rs 36000 pm). Thinking of investing in post office RD (monthly rs 3500)…after 5 yrs I will get the maturity money+interest. But how TDS will be deduced? every year will it deduced from post office RD account itself? or do I need to pay to post office ever year? Also Inever filled income tax returns. After maturiry how will I receive my full money?
    Please reply,
    Thanks and regards, Raj.

    Reply
      • Hello Basavaraj:
        That means after maturity I get the full money (money + interest) without any deduction. Do I need to show any documents to receive the money? Do I need to submit any Forms?
        Thanks for your reply.

        Reply
        • Raj-Yes, you have to submit the form. Contact Post Office, they help you.

          Reply
  22. Hi Basu,

    Nice blogs and really helpful.

    I am 30 year old IT professional having 1 year Son. I want to do investment for Child education and retirement goals.

    I have taken Ageon religare iTERM policy.

    I want to invest 10,000/m for 10 to 15 years , out of which 5k in equity and rest in secure plans.

    Request you provide best suitable options to achieve above goals.

    I will appreciate your response which will really help me to plan my portfolio better.

    Reply
    • Nishikant-If your goal is around 15 years, then use PPF for debt portion of investment. For Rs.5,000, you can use one large cap fund like Franklin or ICICI Bluechip Fund and another small and mid cap fund like HDFC Midcap Opp or Franklin India Prima Fund.

      Reply
  23. Can I purchase KVP from BANK??? Can I purchase KVP for 1 year??

    Reply
  24. Nice article. I am a professional and might need around 50 lakhs for my son after 20 years who is newborn now. Many people have raised apprehension over equity . I wanna invest upto 5000 per month. But with calculated risk. Suggest me a best equity with tax planning also…..

    Reply
  25. R/sir how much n whre should I invest for my child(3yrs) so that it could meet his studies after 18yrs. Thanx

    Reply
    • Balaji-Use equity mutual funds for your kid’s long term goal. At the same time, buy a term plan to cover your life risk to the tune of around 15-20 times of your yearly income.

      Reply
  26. Hi,

    I want to invest 70,000 per year in order to reduce the TAX ( Under 80 C).

    can you please suggest me which Savings scheme will be good – KVP/NSC/Bank Tax Saving Scheme/mutual funds & Equity.

    Thanks

    Reply
    • Kannan-Whether you have an idea of how to utilize this invested Rs.70,000 in future? I don’t think so. First have a particular mind about your financial goals. Based on those goals start investing. Finally while choosing products, think of tax saving. Otherwise it may harm your financial life.

      Reply
  27. i have extended my ppf account for 5 years after completion of 15 years .now i want to extend it for a further period of 5 years with contribution is it possible if yes when is the deadline

    Reply
    • Rajendra-Yes, you can do so by informing them one year before the expiry.

      Reply
  28. I am 34 years old n living in USA since 5.5 years, I bought house in my home town,bought 6 acrs of farm land for my future project and also bought 4 plots . I did 10 lakh rs FD for my Child(age 3) name for 3 years,adding every year 1.5 lkah rs in Sukanya Samridhi yogna.

    I have 3 ICICI bank ULIP policy since last 8 years total investment 75000 per years and 1 Birla Sunlife Endowlment plan 60000 per month.Now I am loan free.

    I am Planing to return back on 2018 in India till then I can invest 1 to 1.5 lakh per month. Now I dnt want to invest in mutual fund or any equity . I am planing to start farming in 2018 ,I need investment advice like i can get parallel good return so that i can concentrate on farming or other business. Could you please suggest me do i need to invest in Post office FD,RD,NSC,PPF or other investment.

    Reply
    • Sry 1 Birla Sunlife Endowlment plan 60000 per year.

      Reply
    • Rameshwar-You are already in trap by investing in FDs (for your kid’s future), ULIPs (indirectly you are into equity, but now claiming that you don’t want to invest in mutual fund or any equity), Birla Endowment Plan, Sukany Samriddhi Yojana (a political gimmick). I don’t have words to say anything or suggest. Because your goal is just around 3 years. Use FDs or RDs for such purpose. You have to think seriously about each of your investment.

      Reply
  29. I want to invest rs 1 lack lump sum for 5 years say for my child’s education. he is now below 1 year of age. Please suggest me the best investment tool for maximum goal. Currently in my mind I am thinking of Post office term deposit.

    Regards
    Manash

    Reply
    • Manash-Invest NOW immediately as Govt may soon revise the interest rates (In my view, they lower it).

      Reply
  30. Hello Mr. Basavaraj,

    whether keeping money in FD either for long term or short term really fruitful? The interest rate on FD, Bank gives is approx. 8% and after tax deduction the interest rate would be around 6 %. Inflation is also 8%. So what is the advantage of FD because we are actually loosing our money as each year pass by. I find Equity or real estate investment much better as they have interest rate of approx 12%. What’s your view?

    Thanks

    Reply
    • Manav-I recommend FDs when you have any short term goal. Equity for long term goal. But real estate never. Why? Because the game is just begun, let us wait and see the result exactly like the faith of GOLD.

      Reply
      • thanks. Could you please throw more light over why real investment or gold not good. Does it mean they are unpredictive or they are underperforming?

        Reply
        • Manav-Check the price to income from RE. It is just around 5% (I mean to say rental income). Why to risk my money in such illiquid and unregulated asset class? Gold was SHINING but now no one dare to say that it will always gives +ve returns.

          Reply
  31. As per budget 2015, up to 10000/- interest earned in Savings account is not taxed? Also same is the case with RD. I think it is the same with FD. Does it mean that up to 30000/- interest can be tax exempt if I put money proportionately in Savings Account, FD and RD? or is the cumulative of all three should not exceed 10000/- for tax exemption?
    Please clarify.

    Reply
  32. Hi Basavaraj,

    I want to invest monthly 10 to 20 thousand as recurring for next 10 to 15 years. Can you suggest which one from KVP / PPF / RD? I have no plan of pre mature withdrawal.

    Thanks

    Reply
  33. Sir I want to invest Rs-2000 per month. What will best for me(kvp,ppf,nsg). I am 29 years old and marked .

    Reply
  34. I AM 40. A MARRIED PERSON WITH A SON (3) HAVING 12 LAC SAVINGS.I AM WORKING IN A PRIVATE SCHOOL .PLEASE ADVISE ME HOW SHOULD I RE INVEST MY MONEY FOR A GOOD RETURN.

    Reply
  35. Hi Basava,

    this is padmanaba Reddy i want to invest 3 lakhs in KVP . at the maturity period for the intrest i earned it was taxable?
    when i contacted postal dept they ar telling that as of now there is no TDS, but in the future might come but not confident.

    can you help me . Thanks in advance

    Reply
    • Padmanabareddy-KVP offers no tax benefits. While investing you can’t claim any deduction. Interest earned is taxed on accrual base as per your tax slab. Whether no TDS means no TAX? No…it is taxable.

      Reply
  36. Sir,

    i want to invest 6.0 lacs, please give the plan for confirm maturity amount.

    Reply
    • Rajnisinh-Rs.6 lakh?? What is your requirement? When you need this money? How you planned for rest of things? Please don’t share two lines and never ask for readymade answers from me.

      Reply
  37. thanks a lot for such a help…

    Reply
  38. Thank you Mr. Basavraj, for such a help. I have to invest Rs. 40000 ( Forty thousand) to save my Income tax @10% slab. I have PPF a/c, Conventional LIC, but no FD or NSC or KVP etc. pl. advise me .

    Reply
    • Brahmaananda-First buy term insurance then rest of the investments.

      Reply
  39. Sir my invested amt in mutual fund and ulips is around 10 lakhs,when will be the right time to exit?and the idea of depositing in post office mis and then again start investing in mutual funds through sip.what do u say?

    Reply
    • Joydeep-Right time to come out of equity is before 2-3 years of your goal. So you need to judge yourself when is right time to come out.

      Reply
  40. i am anew investor ,i am a professional doc .HOW DO I GO ABOUT WITH INVESTMENT FOR MYSELF AND MY CHILDREN AGED 16 YEARS AND SON 14 YEARS ,… ANY BENIFITING BONDS OR VIKAS PATRA ….I HAVE GOT LIC INDIA FOR ALL OF US ONLY.PLEASE HELP BAVESH! LOOKING FORWARD FOR REPLY.

    Reply
    • Yuv-Your two lines asking me complete picture of investment. Simple to say, as you can’t advice your patient without knowing their diseases well, same applies to financial planning. So it is hard for me to guide you in this manner.

      Reply
  41. gud morning sir,i want to earn 1crore rupees in 2o years.please tell me best plan or best mutuvalfunds.tell me process where&how i consult invest inthis plan.

    Reply
    • t.obulesu-Whether that Rs.1 Cr suffice to you after 20 years? How you arrived at that amount?

      Reply
  42. Thanks. Crisp and Clear

    Reply
  43. i am again writing, last time i did not get any reply from your side please please suggest me or reply me

    hii i am harish from jaipur and working as a IT Engneer and also agent in bajaj aalianz. i want to invest ELLS from my father side to avail tax benefit and its locking period is 3 years that i know

    I want to know that which fund we choose for ELLS and the amount is 50000 to 60000 thousand one time investment.
    is it good to take 100 % equity portfolio or we have to invest in diversified fund or any else please suggest me
    and i want to invest in direct plan with growth option.

    so plz suggest me and give fund selection advise.

    please please reply me

    Reply
    • Harish-Sorry for missing to reply to your earlier doubt. Please do remember that even though ELSS have lock-in of 3 years only, but these being equity products. So your investment time or waiting period must be more than 5-7 Yrs. Then only think of investing in ELSS. Second thing, there are no such products which classify debt or equity in ELSS. So only small portion will be in debt and majority of it will be in equity. When you said ELSS then you have less option to invest like normal funds (large cap, large or mid cap or small and mid cap). So choose a fund of your choice and start investing.

      Reply
  44. Hello,

    Thanks for share the valuable information. What you say about short term investment considering the year of 1-2 year?
    What investment is suitable for this time frame?

    Thanks,

    Reply
    • Anshu-To simplify it, Bank FDs are best if your time horizon is less than 3 years.

      Reply
  45. Hi,
    Such a good explanation for small savings investment. I must say read this article first then you invest accordingly to your needs. 🙂

    Your articles are always really mind blowing n thanks for sharing with us.

    Reply
  46. This is very good information and i check the articles regularly are really helpful. Can you also write sometime on comparisons between ELSS versus Tax Saving Bank FDs versus other tax saving instruments or point to your earliar articles on this.

    Thanks again.

    Reply
  47. KVP is now eligible for 80C exemption under income tax act from FY 2014-15

    Reply
    • Manoj-Check your facts once again. As far as current laws concerned I don’t think it will be considered under Sec.80C. If you are right then share the information with me.

      Reply

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