That the Government is serious about channelising the common man’s savings to help the economy revive is clear from the new post-office savings schemes announced – the Kisan Vikas Patra (KVP), a National Savings Certificate (NSC) with insurance cover and an instrument to cater to the education and marriage of the girl child, aside of the hiking of PPF investment limit to Rs 1.5 lakh.

KVPs were a hit

The reintroduction of the KVP is a convincing step to rope in household savings. Before it was withdrawn from December 2012, KVPs accounted for one-fourth of the total inflows into all Post-office schemes.

With features such as no limit on the maximum investible amount, free transferability by virtue of being a bearer instrument, absence of TDS (tax deduction at source) on the interest and a promise of doubling the investment in eight years and seven months, KVPs were popular savings vehicle with investors. KVPs were also a hit with senior citizens as they were totally risk-free and had attractive interest rates.

A wide usage of the KVP for parking unaccounted money, (given its opaque nature) had prompted the government to discontinue the scheme then. Though its reintroduction is sure to attract interest, it remains to be seen if all the original features are retained, given the earlier concerns.

Encouraging NSC

We need to wait for clarity on the features of the new NSC with insurance cover. Nevertheless, with post offices having a wide reach and postal life insurance available only for state and PSU employees, the aim of this move seems to be to extend the benefits of insurance to the aam aadmi. But the choice of NSC to provide this insurance is again competent enough to attract savers from all walks of life. Today, even when providing 8.5 per cent interest, the 5-year NSC give higher post- tax yields than bank tax-saver deposits offering at least a 100 basis points higher. This is because, along with the 80C deduction for initial investment, every year’s interest earned on the NSC (except the fifth year’s) is considered a reinvestment and is not subject to tax.

Clarity on the scheme for the girl child is also awaited. At present only few mutual fund schemes and ULIPs are available, if you want to earmark investments specifically for your child’s future. But these are subject to stock market vagaries. So this risk-free scheme is again sure to attract attention.

While all this appears enticing, it must be remembered that interest rates on all small savings schemes will be reset based on market rates on April 1 each year. So you can be more nimble on your feet and invest elsewhere, if the risk-return metrics available outside the post office schemes prove to be more attractive.

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