Kisan Vikas Patra vs Mutual Funds: Which Gives Better Inflation-Adjusted Returns?

Imagine you are planning to invest ₹1,00,000. Your grandparents suggests Kisan Vikas Patra, since is secure and government guaranteed. But, your friend ass you to put that money in mutual funds, to harvest better returns. Considering inflation, who is going to win? In this article, we break down the pros and cons of investing in Kisan Vikas Patra and mutual funds — which gives better inflation-adjusted returns? Let's break down.  

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Kisan Vikas Patra 

The Kisan Vikas Patra (KVP) is a government-backed savings certificate scheme. It allows investors to make unlimited investments by purchasing certificates of different denominations from post offices. The amount invested in Kisan Vikas Patra (KVP) doubles in 115 months. However, at the time of its launch, the scheme had a maturity period of 5 and a half years, during which the invested amount would double upon maturity. The certificates can be purchased by an adult for themselves or on behalf of an adult. The scheme offers an interest rate of 7.5%, and there is no maximum limit. A minimum of ₹1000 and any sum in multiples of ₹100, may be deposited in an account. 

The certificates can be issued under the following categories: 

Single Holder Type Account: 

• Can be opened by an adult for themselves. 
• Can also be opened by an adult on behalf of a minor or a person of unsound mind under their guardianship. 
• A minor aged 10 years or above can also open this account in their own name. 

Joint A-Type Account: 

• Can be opened jointly by up to three adults. 
• The amount is payable to all holders jointly or to the surviving holder(s) after the death of one or more account holders. 

Joint B-Type Account: 

• Can be opened jointly by up to three adults. 
• The amount is payable to any one of the account holders or to the survivor(s) in case of the death of one or more account holders. 

Mutual Funds 

A mutual fund is a collective investment vehicle that gathers money from multiple investors and invests it across various asset classes such as equities, bonds, government securities, and money market instruments. 

The funds collected are managed by professional fund managers, who make investment decisions based on the scheme’s stated objectives. The income or gains generated from these investments are then distributed proportionately among investors, after deducting applicable expenses and management fees, through the calculation of the fund’s Net Asset Value (NAV). 

In simple terms, a mutual fund allows individuals to invest collectively and benefit from diversification and professional management, even with relatively small amounts of money. It gives returns starting from 12% per annum, and is flexible. The returns vary for different mutual funds. This means that you can withdraw your investment whenever you wish.  

How Inflation Impacts Your Investments 

Let's take the ₹1,00,000 you want to invest.  

In case of Kisan Vikas Patra, you might get ₹2,00,000 in say 10 years. However, because of inflation, the ₹2,00,000 you receive in the future may not buy as much as it can today. 

But in case of mutual funds, assuming a minimum 12% return, you will have around ₹3,10,000 in 10 years. This is a much better investment against inflation.   

Kisan Vikas Patra vs Mutual Funds