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

If you value liquidity and tax deferral, debt mutual funds-especially short-duration or target maturity options-are worth considering.

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?

Value Research explains all the small saving schemes that will let you lock in current interest rates? 

Source for chart: Valu Research Team

 

Fixed-rate small saving schemes vs debt mutual funds

 

 

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:

 

• Go for SCSS if you're a senior citizen and want income + safety
•  Choose NSC if you're a conservative saver aiming for tax benefits
•  Pick debt funds if you value flexibility and want market-linked growth
• Smart strategy? Use a combination of all three. For instance:
• SCSS for income
• NSC for safe growth
• Debt funds for liquidity and diversification