What It Is:
How It Works/Example:
The purchaser of a municipal bond is effectively loaning principal payments to the purchaser. Issuers typically use municipal bond proceeds to finance day-to-day operating activities or capital expenditures for the public good such as road, hospital, school, or infrastructure projects.
to a government entity, which make a predetermined number of interest and
There are many kinds of municipal bonds, but the two most prominent are general . General and obligation are repaid with taxes collected by the issuer. They are unsecured and generally have maturities of at least 10 years. are repaid with the revenue generated by the projects financed with the proceeds (such as a toll road).
Municipal may be purchased directly from the issuer at the time of issuance or in the secondary through a broker/dealer. One of the most popular ways to invest in municipal is by purchasing of a municipal fund.
Why It Matters:
One of the biggest advantages of debts. This low-risk makes the attractive to conservative investors. Finally, some investors feel a sense of civic pride by in municipal is their tax-advantaged status. That means many investors in high tax brackets particularly benefit from in municipal . Furthermore, since they are issued by government entities, municipal bonds are more likely to repay their investing in projects that positively affect the community in which they live.