What are Municipal Bonds
A municipal bond is a fixed-income security issued by a government municipality, township, or state to fund government projects. Municipal bonds are often known as “muni bonds” or “muni” bonds.
Municipal Bond Have a Wide Range of Applications
Municipal bonds are bonds that are often issued by municipalities to fund municipal projects, such as:
- Construction of educational facilities.
- Libraries are being built.
- Infrastructure development (roads, bridges, public transit).
- Investing in police forces.
- Investing in fire departments.
- Creating parks and walking paths.
- Community centers are being funded.
- Investing in waste management.
What are they and how do they work?
The interest and principal repayment schedules are used to classify municipal bonds. They’re set up in a variety of ways, each with its own set of tax benefits and treatment. A municipal bond’s income is often tax-free, which makes it particularly appealing to investors in high tax rates. Some types of municipal bonds, however, are not tax-exempt.
Municipal bonds are divided into two types:
- Bonds with a general obligation – Government entities issue general obligation bonds, which are backed by revenues from a specific government project. As a result, the bonds are often riskier and yield more.
- Bond for revenue – Government entities offer revenue bonds, which are backed by the proceeds of a specific government initiative. Tolls or taxes, such as sales tax, property tax, and so on, can be used. The returns on the bonds, on the other hand, can vary based on the amount of revenue generated from the various sources.
