Muni Bond Funds

Municipal bonds are issued by the city and county local governments to raise funds. They can fund libraries, schools, road improvements, or stages.

Some municipal bonds are general obligation (GO) bonds. This means that the government program is free to use the money as it sees fit, whether to buy a new police car or pay for janitors in the county hospital.

Other municipal bonds may be used only for a specific purpose. For example, a county may use funds to build a toll road. The tolls collected from motorists is used to reimburse owners of bonds.

Some consider that GO bonds safe because the government can pay the interest required from the amounts collected, if taxes or speeding ticket. Some consider the bonds more secure. This is because the toll of a municipality may continue to make money even if its property tax base on the decline.

Historically, municipal bonds have low default rates. The few cases of default of obligations leading Muni is great news. But the 1983 Washington Public Power Supply System default on bonds to finance nuclear plants and the 1994 Orange County, California bankruptcy remain exceptions.

The appeal of large municipal bonds is that their interest is tax free at the federal level. However, because of this feature of municipal bonds pay interest rates that are on average lower than corporate bonds.

This is why many wealthy investors, with a high marginal tax rates put all their money in bonds Muni reduce their federal tax burden. Municipal bonds are not as beneficial to investors in lower tax brackets.

They also are not the best investment for tax-sheltered accounts such as traditional or Roth IRA. Because of accumulating tax-free income in retirement account is a loss of its status as tax shelters.

Interest on municipal bonds are taxed by cities and states.

There are thousands of links to choose Muni, and they are not easy or convenient to buy, even for the rich. dealer bond service institutions generally with millions of dollars to spend.

However, investors can buy shares of the iShares S & P National AMT without Municipal Bond Fund: MUB and SPDR Barclays Capital Municipal Bond ETF TFI.

MUB tracks the S & P National Municipal Bond Index without TN.

TFI tracks Barclay's Capital City managed money Index (ticker: LMMITR).

(AMT is the alternative minimum tax. Thus, revenues from these two ETFs are not taxable by the IRS.)

The expense ratio is 0.25% MUB. TFI is 0.30%.

MUB total assets is 592. TFI is 282.

MUB credit rating is AA-by. TFI is AA2.

The two funds pay monthly dividends.

average life is 7.93 years MUB. TFI is 7.70.

TFI has an expense ratio slightly higher. It is also half of many farms, so it is not as diverse as MUB. Otherwise, they have similar characteristics, so it is not necessary to buy both.

Investors in the tax brackets higher who want to diversify their portfolios of municipal bonds while receiving monthly checks should consider investing in both MUB and TFI.