Question

Cover municipal bonds, how are the used by the issuers, how are they used by the investor, what are the risks and benefits of them? also please look for a couple of examples of current municipal bonds being offered and explain their yield, risks and current situations?

Answer 1

A municipal bond is a debt obligation issued by a nonprofit organization, a private-sector corporation or another public entity using the loan for public projects such as constructing schools, hospitals and highways.  

Generally the issuer of the municipal bonds are governments or local bodies , they use this municipal bonds money to do the public projects like construction of metro rails, schools, highway roads, multipurpose public projects for infrastructure creation.

Municipal bond funds are an attractive option for an investor’s conservative allocation due to their income and tax exemption. They are often sought by high net worth investors in higher tax brackets specifically for their tax exemption advantages.

Funds that primarily invest in municipal bonds are exempt from federal tax and may also be exempt from state tax. A municipal bond fund is exempt from state tax if it is comprised of bonds issued primarily in the state of the investor’s residence. In addition to tax exemption, municipals also offer distributions which make them top investment choices for income investors. Funds pay distributions monthly, quarterly, semi-annually or annually. A fund’s distributions can be observed by its trailing and forward yield. The trailing yield provides insight on distributions as a percent of the fund’s price over the past twelve months. Forward yield is based on the most recent distribution.

examples :1) Kentucky Higher education ln Rev taxable Sub ser 1b - yeild = 5.239% ,risks are its an investor sold bond and maturity period is too long upto 2036, hence the funds of investor may get locked.