A municipal bond, also known as a muni, is debt security used to fund capital expenditures for a county, municipality, or state. Municipal bonds are commonly tax-free at the federal level but can be taxable at state or local income tax levels or under certain circumstances.

How do I redeem municipal bonds?

You can redeem a matured bond at your local financial institution or through the municipality itself. You also have the option to sell the bond before it matures on a secondary market, and you may be forced to redeem the bond if the municipality calls it.

Are inherited municipal bonds taxable?

If you inherited municipal bonds, the interest from this type of bond is exempt from federal income tax.

Can a retail investor invest in municipal bonds?

Retail investors cannot invest in municipal bonds for now. Most mutual fund houses are also staying clear of these, at least for the first few issues because the bonds are still new in the market. The expectation is that when markets eventually pick up, they will start buying. However, you can buy these bonds once they hit the secondary market.

What is purpose of municipal bonds in India?

The municipal bonds that are set to be seen in the market, will be used for the government’s smart cities project. The project aims to improve 100 cities, by the year 2020, in terms of facilities such as water supply and transportation. Typically, municipal bonds have a tenure of more than 5-7 years.

When do you get your money back from a municipal bond?

Many bonds allow the issuer to repay all or a portion of the bond prior to the maturity date. The investor’s capital is returned with a premium added in exchange for the early debt retirement. While you get your entire initial investment plus some back if the bond is called, your income stream ends earlier than expected.

What’s the difference between general obligation and municipal bonds?

Both general obligation bonds and revenue bonds are tax-exempt and low-risk, with issuers very likely to pay back their debts. Buying municipal bonds is low-risk, but not risk-free, as the issuer could fail to make agreed-upon interest payments or be unable to repay the principal upon maturity. Municipal bonds come in the following two varieties: