Municipal bonds are debt securities generally issued to fund the projects of local governments. You make cash payment at the time of buying municipal bonds and repayments are made by the issuing authority over a fixed period of time. The repayment period can last years. The bondholders also get interest that is exempt from various taxes. In most cases, returns from municipal bonds are exempt from federal taxes. If the bondholder resides in the state that is issuing the bonds, the municipal bonds are also exempt from most state taxes. Hence, municipal bonds are mostly tax-free bonds.
Here are the ten top sources for municipal bonds:
- Municipal bonds can be bought directly from the original issuer. Such purchases are done in primary market and you can buy them at the time of first issuance. With direct purchase, you pay a price that is free of any mark-ups or premiums that are charged in the case of purchase through the dealers or brokers.
- Advertisements are issued in leading economic journals and publications whenever a government authority issues municipal bonds. Investors should keep themselves updated with upcoming bond issuances for direct purchase of municipal bonds.
- Municipal bonds can also be purchased in the secondary market, where bonds are purchased from an existing bondholder.
- You can purchase municipal bonds from dealers. In this case, you should make sure that the bond dealer is registered with the Municipal Securities Rulemaking Board (MSRB).
- Another source for municipal bonds can be brokerage firms. Most traditional as well as discount or online brokerage firms deal in municipal bonds. However, the dealers and brokers first purchase the bonds or sell them from their existing portfolio and charge a mark-up or premium to their own purchase price.
- You can also invest in municipal bond funds. Such funds invest in numerous individual municipal bonds issued by different authorities. Mutual fund bonds are more attractive for those investors seeking a diversified risk profile. Risks attached with one high-risk municipal bond can be diluted with low risks associated with the other.
- You can also purchase municipal bond funds from mutual fund companies. At mutual fund companies, investment decisions are made by professional fund managers, which is generally not the case with individual municipal bonds.
- Municipal bond funds can also be purchased from brokerage houses. The large brokers and dealers sell both individual bonds and funds to cater to different kinds of investors.
- You should first look at purchasing municipal bonds issued by the state or local government within your own state. This will help you save more taxes, as interest payments will be exempt from local taxes in addition to federal taxes.
- Investors can also purchase municipal bonds from banks.
© Newsmax. All rights reserved.