This year’s Budget 2023 introduced a new small savings scheme for women called the “Mahila Samman Savings Certificate”. Women can invest up to ₹2 lakhs in this scheme for two years at an annual interest rate of 7.50 per cent.
There is the benefit of a partial withdrawal option too. Finance Minister Nirmala Sitharaman in her Budget speech announced, “For commemorating Azadi Ka Amrit Mahotsav, a one-time new small savings scheme, Mahila Samman Savings Certificate, will be made available for a two-year period up to March 2025.” The government issued the gazette notification on March 31, 2023.
Any woman can invest in this scheme. Guardians looking to invest on behalf of their minor daughters can also allocate some money to this scheme. All they have to do is ask for Form-1 at a nearby post office or bank, fill in the details and submit it before March 31, 2025.
Is there a limit to this MSSC scheme?
The minimum amount you must invest in this scheme is ₹1000. You can then invest in multiples of ₹1000 subject to the aforementioned investment limit of up to ₹2 lakhs. Also, there is no upper limit on numbers, which means that women can invest in this scheme many times provided they do not breach the investment limit of ₹2 lakh. Also, there must be a three-month gap between the existing account and the new opening date, thus, availing the benefit of multiple investments for women.
Should you invest in this scheme?
The government has not mentioned any tax benefits in this scheme though it is worth considering if you look at how your money is compounded quarterly with flexible investment and partial withdrawal options.
To understand the compounding effect, let us understand how four times compounding in a year results in increased yield owing to a higher internal rate of return (IRR).
Rate of Return: 7.5% per annum
Compounding frequency every year: 4
Investment tenure: 2 years
Effective Rate per Period: 7.7136%
Effective Rate for two years: 16.0222%
Rate per compounding interval: 1.875%
You are earning an effective higher rate of interest in this scheme, which is evident in the following calculations.
Investment Amount: ₹2,00,000
Interest Rate: 7.5% per annum
Compounding frequency in a year: 4
Interest earned: ₹32,044.33
Value of the investment on maturity: ₹2,32,044.33
This may prompt you to break into your existing investments. This move can be wrong on several counts. One way, you will end up paying taxes on premature redemption of your existing investments.
Also, you do not know if the government would allow auto-renewal on the same or afford a higher interest rate in the future. The investment tenure is two years, thus, implying that you invest only that amount that you might not need in the coming two years.
The compounding effect underscores how the interest earned is more compared to most government-sponsored schemes though its effect is less palpable due to the investment limit. However, if you are someone who accounts for every penny earned and saved, this new scheme may be an ideal addition to your investment portfolio.