SCSS vs NSC vs Debt Funds: Which fixed-income option is the best in 2025?

Business Standard

22-05-2025

When it comes to generating stable, tax-efficient returns, investors in India often find themselves torn between traditional savings instruments like the Senior Citizens' Savings Scheme (SCSS) and the National Savings Certificate (NSC), or newer, more market-linked options like debt mutual funds.
With interest rates, tax rules, and inflation all evolving, how do these options compare today? More importantly, which one should you pick based on your needs?
The Contenders: What are they?
Fixed-rate small saving schemes vs debt mutual funds. Source: Value Research
1. SCSS (Senior Citizens' Savings Scheme)
For: Individuals aged 60 and above
Interest Rate (April–June 2025): 8.2% p.a. (paid quarterly)
Tenure: 5 years (extendable by 3 years)
Tax Benefits:
Eligible for Section 80C deduction (up to Rs 1.5 lakh)
Interest is taxable, but TDS is applicable if interest exceeds Rs 50,000/year
Best for: Retirees seeking regular income with government guarantee
2. NSC (National Savings Certificate)
For: Any Indian citizen
Interest Rate (April–June 2025): 7.7% p.a. (compounded annually, paid at maturity)
Tenure: 5 years
Tax Benefits:
Principal qualifies for Section 80C
Interest is taxable, but reinvested interest (except final year) also qualifies for Section 80C
Best for: Conservative investors with a 5-year horizon, who don't need regular income
3. Debt Mutual Funds
For: Investors of all ages
Returns: 6–8% on average, can be higher/lower depending on type
Taxation (Post-2023 rules):
Gains taxed at slab rate (no LTCG benefit)
No Section 80C benefit
Indexation benefit abolished for debt funds
Best for: Investors seeking liquidity and diversification, with some risk tolerance
Comparative Snapshot
Which one should you choose?
For Senior Citizens:
Value Research recommends SCSS
Why: It offers high assured returns and quarterly payouts, ideal for retirees needing regular income.
Example: Mrs. Rani, 65, invests Rs 15 lakh in SCSS. She earns Rs 30,750 every quarter, providing her with predictable income while her capital remains safe.
For Salaried Taxpayers Saving for 5 Years:
Choose: NSC
Why: If you want a fixed return and tax savings under 80C but don't need liquidity, NSC fits the bill.
Example: Sanjay, 35, wants a tax-saving investment but already maxes out EPF and PPF. He invests ₹1.5 lakh in NSC. In 5 years, he gets back ₹2.2 lakh, earning steady compounded returns without taking any market risk.
For Working Professionals with Moderate Risk Appetite:
Choose: Debt Mutual Funds
Why: If you value liquidity and want to diversify with dynamic returns, debt funds (like low duration, short-term, or corporate bond funds) are suitable.
Example: Priya, 40, keeps ₹5 lakh in a corporate bond fund yielding 7.2%. She holds it for 2 years and exits without penalty when she needs the money for her child's school admission.
Caution: Tax rules have changed
Post-April 2023, debt funds lost their long-term capital gains (LTCG) tax benefit and indexation advantage. Now, all gains — even after 3 years — are taxed as per slab rate. This reduces their edge over traditional instruments, especially for those in the highest tax bracket (30%).
Tip: Tax-aware investors in higher brackets should lean toward SCSS or NSC unless they need liquidity.
There's no one-size-fits-all answer. Your life stage, income needs, tax bracket, and risk appetite should drive the decision. As per Value Research: