What are Municipal Bonds or Munis?

 

What is a municipal bond?

Municipal bonds are debt securities issued by cities, states, counties, or other local governments. They are also commonly known as Munis, and could be issued for 1 to 10 years.

Why is a municipal bond issued?

These bonds are issued to raise funds for public projects like highways, schools, sports arenas, hospitals, etc.

How can I buy munis?

You can buy munis through your financial advisor, bank, or directly from the issuer. You can also invest in munis indirectly through a bond fund.

Why should I invest in municipal bonds – what are the advantages?

Their biggest advantage is that the interest you earn from these bonds is usually tax-free. So these are a great investment for investors in a higher income-tax bracket. Munis are also considered a very low risk investment.

Are there any disadvantages of municipal bonds?

Because the interest is tax-free, the rate of interest paid by munis is usually lower than that of taxable bonds. Also, municipal bonds are often held till maturity, so the market to trade munis is not very active – making them less liquid.

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