What is a municipal bond fund?
Municipal bond funds are funds that consist of a variety of municipal bonds within one fund. They are issued by a county, city, state, and other municipalities. These municipal bond funds are issued to investors for the purpose of raising funds to construct schools, roads, parks, airports and various other city and state projects and developments.
A major benefit that municipal bond fund investors enjoy is that most of the bonds are typically free from state and federal tax if the investor resides in the same state that the bond was issued. With municipal bond funds, the investment risk is extended and shared by many diverse municipal entities. As a result, municipal bonds are considered to be a safe investment for investors.
As with any investment, however, there is a factor of risk involved with municipal bonds as well. Sometimes, government agencies default on issued bonds due to the failure of municipal projects and are, therefore, unable to pay investors. It is important to understand that there is always some type of risk involved whenever investing. Therefore, it may be a good idea, especially for beginners to invest in municipal funds that include a standard amount of credit risk.
Bond funds that consist of higher quality rated bonds are insured against credit risks. These higher-rated bonds offer lower bond yields, however. Bond funds that consist of bonds with lower quality ratings tend to offer higher bond yields. In order to get insurance against credit risks and higher municipal bond yields when investing in municipal bonds, some experts suggest that it is a good idea to invest in a municipal bond fund that will consists of bonds that are highly rated as well as lower rated.
A municipal bond fund is a type of mutual fund that focuses on the acquisition of municipal bonds as investments. The bonds acquired include any type of municipal bond issued by a city, town, country, parish, state, or federal government. The only limitation on a municipal bond fund is that some type of municipality must issue the bond. Investing in mutual funds that are structured as municipal bond funds is attractive to investors for several reasons. First, a fund of this type earns a return from investments that are considered to be extremely stable and highly likely of generating interest income. For investors that do not wish to engage in a great deal of speculation but still want to earn more of a return than could be realized with savings accounts and certificates of deposit, the municipal bond fund provides both safety and the assurance of a relatively decent return. The municipal bond fund is also attractive due to the fact that many governments do not impose taxes on the inte
