Usually, you are paid interest while you own the bond, and your original lump sum is paid back on a due date. You can sell your bond before the due date if you like.

Bonds are considered a low-risk, reliable investment because they’re backed by a highly reliable borrower – most commonly the government.

They have a role to play in many investment portfolios, balancing out more volatile shares and providing a steady income. They’re an “income” or “fixed income” asset. Most diversified KiwiSaver funds, for instance, tend to own at least a small proportion of bonds. The more conservative the fund, the higher proportion of bonds it will typically include. Aggressive funds might not have many, or any bonds.

Take a look at what’s in your KiwiSaver account; it’s likely you already have some money invested in bonds. A growth fund might include, for example, 20 per cent in New Zealand and international “fixed interest”.

Bonds have lower volatility than shares, but their value does fluctuate depending on interest rates. When interest rates rise, bond values fall, and vice versa. This means they are used to balance out an investment portfolio.

As an individual investor you can buy bonds directly, or in an index fund or ETF that invests in bonds. The easiest way to own bonds is as a portion of a managed fund like KiwiSaver.