MSSC: 7.5% interest rate attractive but no tax benefit a dampener

However, this scheme for women offers no tax benefit and is subject to potential reinvestment risk

The Mahila Samman Savings Certificate (MSSC), which was introduced in Union Budget 2023–24 and became available for investment from April 1, 2023, is in the news these days. On April 29, Prime Minister Narendra Modi urged women to enrol for it. The Union Minister for Women and Child Development, Smriti Irani, subsequently opened an account.

“The MSSC is a small savings scheme that has been made available to women depositors for a two-year period up to March 2025. One can invest up to Rs 2 lakh for a tenure of two years,” says Adhil Shetty, chief executive officer (CEO), Bankbazaar.com.

The scheme

A woman herself, or a guardian on behalf of a minor girl, can apply for this scheme on or before March 31, 2025. One can invest a minimum amount of Rs 1,000 and in multiples of Rs 100 thereafter. The maximum investment limit is Rs 2 lakh in a single account or in all the accounts belonging to an account holder. 

Attractive rate, short lock-in 
 

The scheme has a short lock-in period of only two years. Suresh Surana, founder, RSM India, says, “The interest rate of 7.5 per cent per annum, compounded quarterly, is reasonably good.” 

Col. Sanjeev Govila (Retd), a Securities and Exchange Board of India-registered investment advisor (RIA) and CEO, Hum Fauji Initiatives, a financial planning firm, explains that 7.5 per cent per annum compounded quarterly is equivalent to an interest rate of 7.71 per cent per annum. Being government backed, this scheme is free of any credit risk.

Reinvestment risk

The maximum investment limit of Rs 2 lakh is quite low. Moreover, premature withdrawal invites a penalty. Govila says, “Premature closure is allowed at any time after six months of opening but the interest rate reduces by 2 percentage points. And premature withdrawals are allowed only up to 40 per cent of the balance after one year from the date of opening the account.” 

The scheme doesn’t offer Section 80C deduction. Surana says, “The interest is also subject to tax at the account holder’s applicable income-tax slab rates.” 

MSSC is subject to reinvestment risk: If two years, later interest rates are lower than where they are today, the investor will be forced to reinvest at a lower rate.

Who should invest

Certain types of women investors will find the scheme suitable. Shetty says, “It is a good alternative to fixed deposits (FDs) for women investors looking to invest for the short term. It offers higher return than many FDs and partial withdrawal makes liquidity less of a concern.”

First-time retail women investors who want to test the investment waters may go for it, as can those who don’t need the money for two years. Mrin Agarwal, founder-director, Finsafe, says, “Women in lower tax brackets, who don’t want to take any risk, may go for it.” 

Those who have a longer investment horizon and the capacity to take risks may avoid it, as can those with an investment horizon of less than two years.  

Alternative fixed-income options
 

Within the small-savings basket, the Public Provident Fund (PPF) is a superior investment option. “While its interest rate is lower at 7.1 per cent, it is tax-free and provides Section 80C benefit,” says Dilshad Billimoria, board member, Association of Registered Investment Advisors (ARIA). The PPF, however, is a long-term investment option.

Another long-duration option from the small savings basket is Kisan Vikas Patra, which offers 7.5 per cent per annum interest for 113 months.

Seniors may opt for the Senior Citizens Savings Scheme (SCSS), which has a tenure of five years and offers an interest rate of 8.2 per cent per annum. Govila says, “Sukanya Samriddhi Account, which offers 8 per cent per annum, is a good alternative for minor girls aged less than 10 years.”

According to Govila, those who have a horizon of up to two years, but require liquidity over a short period may opt for low-duration and short-duration debt mutual funds. Those who have an investment horizon of more than two years may opt for categories like medium-duration and banking & PSU funds. 

Salient features of MSSC

An individual may open an unlimited number of accounts, subject to the maximum deposit limit of Rs 2 lakh

A three-month period must elapse between the opening of one account and another

A minimum of Rs 1,000 and a sum in multiples of Rs 100 can be deposited in an account

Interest will be compounded quarterly, credited in the account, and paid at the time of account closure 

Maturity is after two years from the date of opening, and the eligible balance will be paid to the depositor