Investing In Municipal Bonds – The Benefits

Investing In Municipal Bonds – The Benefits

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While we talk about assisted investments there are some safe and secure options like municipal bonds. Sometimes the local governments or the state governments might require funds to finance a government project say an infrastructure development project. In such cases, the government issues municipal bonds to the public and the money that the public invest in buying these bonds would be used to meet the expenses. Here are some of the benefits that municipal bond investments offer.

Tax benefits

Most people invest in municipal bonds for the tax benefits. You would be exempted from federal income taxes for the interest amount earned on the bond. There could also be some benefits on the state taxes when there is a bond issued by the state government. Whether it is a short-term or a long-term bond you get to enjoy the tax benefits for the interest amount.

Not too much volatility

The lesser amount of fluctuations in municipal bonds make them a less risky option for those who are holding the bond for a shorter duration. In most cases the longer the term of the investment the lower would the risks be. So for those who are looking for short-term investments with lower risks municipal bonds are ideal.

Coupon rate differences

For new bonds, the coupon rates are pretty high. And you also get to pick higher vs lower coupon rates by picking long term or short term bonds respectively. For a bond held for a long duration, the interest rates might fluctuate slightly more than the interest rates on the short-term bonds. This is the factor that gives the difference in the coupon rates and in turn the fluctuations in the bonds as well.