4 Things to Know About Municipal Bond Funds

Investing in municipal bond funds can provide you with a number of benefits as an investor. If you are considering investing in this type of fund, there are several things that you will need to be aware of. Here are a few things to know about municipal bond funds.

1 - Returns are Tax-Free

One of the most important things for you to understand is that the returns from a municipal bond fund are tax-free. Anytime that you invest in municipal bonds, you are not going to have to pay federal taxes on the interest that you receive. Depending on your tax bracket, this can be a fantastic advantage. With traditional bonds, you are going to have to pay taxes on the amount of interest that you receive at your regular marginal tax rate. This means that it could be a significant source of savings for you over all. 

2 - Professional Management

With municipal bond funds, you are also going to get to take advantage of professional management. You will have a fund manager that is in charge of making the individual investment decisions for you. When you invest by yourself in the bond market, you are going to have to do your own research and find the appropriate bonds for your situation. Many people are discouraged by the complexity of investing in municipal bonds. By investing in a bond fund, you are not going to have to worry about any of this. The fund manager is going to be in charge of doing everything for you. You will simply have to give them your money to invest and then start collecting your bond interest.

3 - Expenses

When you invest in municipal bond funds, you should also be aware that there are going to be some expenses involved. You are going to have to pay something to cover the management and administration expenses that are associated with the fund. These fees come in the form of an expense ratio. When you are looking at the different municipal bond funds that are available, you should be able to look at the expense ratio that each fund utilizes. Finding a fund with a lower expense ratio is going to allow you to keep more of the returns that you gain from investing.

4 - Buying and Selling

If you are planning on getting involved in this type of fund, you will want to be aware the process of buying and selling shares. When you want to buy shares of this type of fund, you are going to need to put in your order with your broker. At the end of the trading day, the net asset value of the fund will be calculated. Then your order will go through at the price that is calculated. If you want to sell your shares, you will also not know how much the shares will sell for until the end of the trading day.