What is muni bond

Your Money. Personal Finance. Your Practice. Popular Courses. Part Of. Introduction to Fixed Income. Types of Fixed Income. Understanding Fixed Income. Fixed Income Investing. Risks and Considerations. Bonds Municipal Bonds. What Is a Municipal Bond? Key Takeaways Municipal bonds "munis" are debt securities issued by state and local governments. Interest paid on municipal bonds is often tax-free, making them an attractive investment option for individuals in high tax brackets. General obligation GO munis provide cash flows generated from taxes collected on a project, while revenue munis return cash flows generated from the project itself.

Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate.

You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts.

The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.

A public purpose bond is used by municipalities to finance public works as opposed to private purpose bonds. Special Tax Bond Definition A special tax bond is a type of municipal bond that is repaid with revenues derived from a tax that is levied specifically for that purpose.

What Is a Taxable Municipal Bond? Municipal bond mutual funds are a great way to diversify your exposure to muni bonds while reaping the potential tax efficiency. Like with any other mutual fund, fund managers buy a wide range of municipal bonds to help meet the goals of the fund. You still get tax advantages with a municipal bond mutual fund, although the range of bonds owned by a given fund might provide fewer direct tax benefits.

At a minimum, some income from muni bond mutual funds will be exempt from federal taxes, and, depending on where you live, some may also be free of state or even local taxes. Using a municipal bond mutual fund can help you diversify your holdings and create less of a need to manage several different bond holdings on your own, but you also have to pay the usual mutual fund fees—such as expense ratios and potential sales fees—and your returns are subject to changes in the market value of the bonds, rather than relying as heavily on the yield.

Exchange-traded funds are traded on the market like stocks, making it easy to gain exposure to municipal bonds without actually owning them. Like with mutual funds, income from municipal bond ETFs are usually tax-exempt at the federal level and may come with advantages at the state and local level as well.

Even though there is generally more volatility when it comes to price, ETFs are one of the easiest ways to invest in municipal bonds. Miranda Marquit has been covering personal finance, investing and business topics for almost 15 years. Miranda is completing her MBA and lives in Idaho, where she enjoys spending time with her son playing board games, travel and the outdoors. With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree.

Select Region. United States. United Kingdom. Miranda Marquit, Benjamin Curry. Contributor, Editor. Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.

Featured Partners. Annual advisory fee None. Annual advisory fee 0. Was this article helpful? Share your feedback. Send feedback to the editorial team. Rate this Article.

Thank You for your feedback! Something went wrong. Please try again later. Best Ofs. Revenue bonds are those bonds from whose revenue is used for one specific project. The revenues generated from the project is used to pay out the bond investors.

Download link sent. Start investing now or. Start Investing Now. Was this article helpful? Have a query? ITR Resources. Mutual Fund Resources. Terms Privacy Legal.