What is the difference between a taxable fixed-income fund and a tax-exempt fixed-income fund?
A. The differences in a taxable fixed-income fund and a tax-exempt fixed-income fund relate to the types of fixed-income securities in which the fund invests. Tax-exempt fixed-income funds invest in municipal securities, the income from which is generally federally tax-exempt and also generally state-income tax-exempt for those who are investing in municipal securities issued in the state where they reside. For example, investors who are New York residents who invest in a New York tax-exempt fixed-income fund are generally exempt from federal and local income taxes on the income from their investment. However, should a Massachusetts resident invest in a New York tax-exempt fixed-income fund, the income from the investment would generally be exempt from federal income tax but not state and local income tax in the Commonwealth of Massachusetts.
