Buying Municipal Bonds is done mainly through regional broker dealers that maintain an inventory of state issued bonds. Most of the larger Muni Bond dealers have inventory that may be posted online.
They are bought in amounts of $1000 minimum. The tax free status makes them most attractive to investors in higher tax brackets.
If the municipal security is bought in the secondary market, the bond will settle in 3 business days. Interest will accrue from the settlement date from when the investor buys and pay every 6 months.
Knowing how to buy muni bonds is the same as most other bonds that trade in the secondary market.
Wednesday, August 1, 2007
Yield
Municipal bonds and notes are sold to a stated yield. This can be priced to the call date or the maturity date.
Once the yield is known, you can figure out the tax free return based on your tax brackets and the stated yield. You take the YTM and divide it by 100 minus the tax bracket. The higher the bracket - the higher the rate of return.
Muni bonds can be quoted based on the price or yield. Term bonds, which have one maturity will be quoted in price. Serial bonds - which are several maturities of an issuer does not quote on price.
The yield to call may be greater, equal or less than the basis or YTM.
http://www.aitraining.com/bondyield.htm
Once the yield is known, you can figure out the tax free return based on your tax brackets and the stated yield. You take the YTM and divide it by 100 minus the tax bracket. The higher the bracket - the higher the rate of return.
Muni bonds can be quoted based on the price or yield. Term bonds, which have one maturity will be quoted in price. Serial bonds - which are several maturities of an issuer does not quote on price.
The yield to call may be greater, equal or less than the basis or YTM.
http://www.aitraining.com/bondyield.htm
Closed End Municipal Bond Funds
A closed end fund is management investment company that is traded in the secondary market. The fund trades OTC or on exchange and charges a commission, just like shares of individual stocks. A closed end muni bond fund operates the same way.
The fund company will pay out dividends to shareholders based on the net income of the fund. Since municipal securities are fixed income investments that pay interest, this type of fund will pay regular dividends and is considered a type of index fund.
The company is actively managed and the investors have the right to vote. The shares can split as well. A net asset value is calculated each day, but the shares trade in the open market and the price is based on supply and demand - as well as market directions.
Since funds can pool money and invest in thousands of municipal bonds, an investor can be partially invested in all of these bonds for much less money than they would need to buy even 1/10 of these bonds on an individual basis. A fund manager will manage cash, maturities and interest rate changes.
http://www.aitraining.com/closedend.htm
The fund company will pay out dividends to shareholders based on the net income of the fund. Since municipal securities are fixed income investments that pay interest, this type of fund will pay regular dividends and is considered a type of index fund.
The company is actively managed and the investors have the right to vote. The shares can split as well. A net asset value is calculated each day, but the shares trade in the open market and the price is based on supply and demand - as well as market directions.
Since funds can pool money and invest in thousands of municipal bonds, an investor can be partially invested in all of these bonds for much less money than they would need to buy even 1/10 of these bonds on an individual basis. A fund manager will manage cash, maturities and interest rate changes.
http://www.aitraining.com/closedend.htm
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