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Municipal Bonds for Your Portfolio

Friday, Dec 18, 2015

Build Your Investment Portfolio with Muni Bonds

The municipal bond market offers many attractive investment opportunities that are well-suited to investors. For example, tax-free municipal bonds, offer a valuable source of predictable income, free from some level of taxation.

Working with a municipal bond specialist is the best way to determine which type of bond should be used to optimize your investment portfolio. The following are some of the different types of municipal bonds and their features.

Taxable Municipal Bonds

The interest paid by municipal bonds is typically free from federal income taxes, and might be exempt from state and local taxes if you live in the state of issue. If you buy a municipal bond issued by a state that you are not a resident of, and your state has a state income tax, the interest from that bond might be exempt from federal taxes, but taxable on your state return. Municipalities sometimes issue bonds to support projects that are good for the region, but that don't benefit the general public. Commonly referred to as taxable municipal bonds, the interest on these securities doesn't qualify for tax-exempt status. The taxable nature of these bonds is identified in the bond's indenture.

Tax-Exempt Municipal Bonds

A tax-free municipal bond investment produces income that is exempt from some level of taxation. For some securities the interest is exempt from federal income taxes, but not state and local taxes, while others might be exempt from state and local taxation, but not from federal income taxes. Still others might be exempt from taxation in some states, but not in other states. Before you invest in a tax-free municipal bond, it pays to know exactly which taxes it is exempt from.

Zero-Coupon MunicipalBonds

While most municipal bonds provide semiannual interest payments, zero-coupon municipal bonds have no “coupon”, or periodic interest payments. Instead, the investor receives one payment at maturity that is equal to the principal invested plus the interest earned, compounded semiannually, at a stated yield. Discount bonds are sold at a substantial discount from the face amount. When a zero-coupon bond matures, the investor receives the full face value of the bond.

Insured Municipal Bonds

Insured municipal bonds provide investors with the added security that no matter what happens to the finances of the government that issues the bond, the bond's interest and principal payments will be made by the insurer, in the event that the issuer is unable to do so. This type of feature in a municipal bond offers investors the option of having a high degree of safety attached to the municipal bond purchased.

The municipal bond specialists at The GMS Group can assist you in choosing the right bonds, to ensure you have successfully diversified investment portfolio.

Speak with one of our knowledgeable bond specialists today to find out more about which municipal bonds are right for your investment portfolio. You may contact us at 877-567-9811 or contact us online.