Next element of the Growth component: Municipal Bonds

When governments or governmental institutions need funding to finance certain projects that serve a civic purpose, they will issue municipal bonds (or munis) as a way to supplement revenue for these public projects. The different types of institutions that issue these bonds are states, towns, cities, counties, school districts, hospitals, transportation authorities, universities and colleges, housing projects, road and highway authorities, water districts, and power districts.

Municipal bonds are debt securities issued by these organizations to bondholders. In other words, the bondholders are lending the issuing institutions a loan that is expected to be paid back at face value at a certain date. The date that the debt is supposed to be paid back is the maturity date. The face value, or par value, of the bond is the amount of the bond when it is issued.

To entice investors to buy a bond, and thus lend money to these institutions, issuers pay interest on the bond. An extra benefit of this interest is that it is usually exempt from federal income taxes and sometimes local and state taxes as well. This interest is usually paid every six months until the date of maturity, when the face value of the bond is paid back to the bondholder. The annual rate of interest paid on the bond is known as the coupon.

To learn more about different fixed income securities, investments, etc. please feel free to reach out.

Take care,

Bob