What are tax-free municipal bonds & How do tax-free municipal bonds come into existence?
Municipal bonds, also referred as “Munis” are issued and brought to the market by local governments & official bodies to fund their day-today operations like build or repair facilities such as schools, community centers, toll-bridges or sewerage treatment plants. Hence the bonds issued by these government bodies are referred to as Municipal bonds. Fine with municipal bonds, but what are tax-free municipal bonds? Generally, to attract investors in large numbers, the government offers some respite in taxation from the interest earned on these bonds. Interest from municipal bonds is exempt from federal income tax and may also be exempt from state and local taxes. Hence, the municipal bonds become tax-free municipal bonds. For e.g., if you buy a municipal bond which offers an interest or “coupon” rate of 6% annually, and you invest 10,000 $ in this bond, then each year you will get $600 as interest on this investment in municipal bonds. Now if the municipal bond is tax-free, then the inter
