Guaranteed 110% return

National Savings are offering a 5 year bond guaranteed to outperform the footse index by 10% if it rises with no loss if footse goes down. What put me off this is that:

A National Savings employee pushed the bond by saying, on TV, that it offered a guaranteed 110% return.

It is backed by the current government.

It seems too good to be true.

Dividends are not included in their calculations.

You will get screwed if you need to cash in early.

It is subject to income tax rather than CGT in the year the bond matures.

There are "no fees or charges". It is not possible to invest without fees or charges. These may be paid to someone outside National Savings, but they are still fees or charges.

I may well still invest but I would be interested to hear any other views or experiences of other National Savings bonds.

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Oh dear, sounds a bit "popularist"

That might be regarded as very misleading! Presumably they mean 100% of the Footsie + 10%; rather than in the usual sense as the interest rate on principal.

Maybe they keep the dividends, and you get 10%. In that case, they're actually offering a bad deal. In effect, they're offering you a 2% annual return, when the dividend rate is somewhat higher.

Yuk. It might not make a difference to someone who regularly pays CGT, but for the vast bulk of people, paying gains as income tax is bad juju.

Maybe the fees could be absorbed in the excess of dividend rate and the amount they pay out.

It would seem somewhat foolish of them to guarantee that you wont loose money. Unless they hedge the positions, or something.

I have always been suspicious of these "can't loose" deals. There was one somewhat like that from Barclays some time ago, I believe. Presumably they hedge the position with put options. But hedges cost money - so it is nigh on impossible for them to beat the indices.

My opinion, for what it's worth, is that someone should decide whether they are prepared to take the risk of investing in shares, or else they shouldn't bother. Compromise solutions are likely to be disappointing. As the saying goes, people should either piss, or get off the pot.

For my money, this bond is not for me. I recently invested in Framlington UK Select Opportunites in an ISA. It is run by Nigel Thomas - a highly respected fund manager. I would have bought Fidelity Special Situations, but I found out that its manager, Anthony Bolton, is retiring in a couple of years. The way I figure it, I stand a good chance of beating the market, without taking stupid risks.

** WEALTH WARNING: Don't trust me, I'm a nutter **