8% government bonds

With interest rates falling, and projected to fall in the coming months, for investors in debt instruments, it has become a matter of importance. The 10-year government treasury is now at 6.46%; and 1-year treasury is yielding 6.32%. Bank deposit rates for one year are currently less than 7%. 

When safer debt instruments are below 7%, you tend to check out debt funds, which can probably give returns in the range of 8-9%; not assured though. 

There is one more option for the investors seeking risk-free debt. That is the government's 8% bonds. These were issued in April 2003, and yield a return of a little more than 8%. The catch, however, is the lock-in period of 6 years. 

With the brokerage fee of 1% on purchase, the pre-tax return on cumulative comes to 7.98% and on non-cumulative, 7.94%. At least, these are assured returns. If you estimate that inflation and therefore interest rates are likely to be lower during the period, these are better options compared to bank deposits, especially if you are in the lower tax rate.

For someone, who is in the tax rate of 0%, the returns are not bad to lock-in for 6 years. But then of course, all depends upon the opportunity cost of the investor.