Buy these credit risk-free bonds if you can hold them until maturity

Yields of central and state government bonds have risen, widening the gap with fixed deposits (FDs) of large banks.

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The 10-year government security (G-Sec) yield is at 6.60 per cent, while state development loans of the same tenor are at 7.09 per cent. By comparison, State Bank of India is offering 6.05 per cent and HDFC Bank 6.15 per cent on FDs of 5-10 years.

Right time to enter?

Experts see this as a favourable entry point. "This presents a timely opportunity for retail investors to secure sovereign-backed returns that exceed those of comparable FDs," says Saurav Ghosh, cofounder, Jiraaf, a bond investment platform.

Avoid very long-duration bonds for now (unless holding them to maturity) as yields might increase. "Focus on medium term maturities, which strike a better balance between yield and risk," says Raghvendra Nath, managing director, Ladderup Asset Managers.

Free of default risk

G-Secs are sovereign-backed and hence free of default risk. Investors can also exit them at any time. "FDs usually impose penalties for premature withdrawal," says Ghosh. Direct investing in G-Secs offers investors control over the choice of bonds, and they don't have to pay fund management fees. G-Secs can serve as margin money for traders.