Kisan Vikas Patra: Interest rate locked at 7.5% since April 2023; key points to know before October

Kisan Vikas Patra (KVP) offers investors an opportunity to double their money at fixed rate, and in a fixed time frame. At the current 7.5% rate, a certificate bought today will mature in 115 months, or nine years and seven months. This rate has been in place since April 1, 2023, and if Wednesday's notification for the October-December 2026 quarter leaves it alone, it would be the 14th consecutive quarter without a change.

Because the promise is framed as a doubling period, every notified KVP interest rate translates into months to double. The following table shows how long it takes to double the investment at current rate and a little lower or higher assumed rates:

The KVP allows a minimum investment of ₹1,000 and there is no maximum limit. KVP can be pledged as loan collateral while premature encashment is also allowed after two years and six months. However, there is no tax benefit under this scheme, and the interest is fully taxable at slab rate.

As per the Shyamala Gopinath Committee framework, the KVP is benchmarked against a comparable-maturity G-sec with a 25-basis-point spread. The 10-year G-sec, which is the closest match to the KVP's 115-month tenure, averaged roughly 6.85-6.90% over the July-September reference quarter, implying a formula rate of about 7.1% against the 7.5% actually paid. The 10-year G-sec touched about 7.1% on September 24-25 after a six-week bond rout, narrowing this gap.

The government has kept all small savings rates unchanged for nine consecutive quarters. KVP collections, like other schemes, fund government borrowing through the NSSF. With the formula gap now the narrowest it has been in the freeze era, a cut looks less likely than it did a year ago. A KVP rate hike can also not be expected at this time.

The National Savings Certificate pays 7.7% over five years with a Section 80C benefit, and the five-year post office time deposit pays 7.5%, also with 80C. The KVP offers neither tax benefit. For an investor in the 30% tax bracket, 7.5% taxable works out to roughly 5.25% after tax.

The KVP rate is locked at the time of purchase. A certificate bought before October 1 will double in 115 months regardless of the September 30 notification. Any revision would only change the doubling period on fresh KVPs.