Closed End Municipal Bond Funds for These Trying Times

Closed End Municipal Bond Funds for These Trying Times

Posted on 06. Jan, 2011 by in Retirement

The majority of investors are now finding the means to guard their investments in the midst of a trying economic time.  With this in mind, more and more are thinking about investing in closed end municipal bond funds. This type of bond fund is tax-free. Yet, there are downsides as well as upsides.

To start off with, closed end municipal bond funds are usually treated like a common stock.  There are those that are taxable and there are those that are not.  This is good especially for those who are considered to be in the upper tax brackets.  Locally issued bonds are tax-free, but for those that are issued by the government or from the corporate sectors, they are taxable.  Because of this, investors find that closed end municipal bond funds can earn at a higher rate of interest.

Additionally, closed end municipal bond fund brokers do not charge purchase charge commissions, not like open end funds.  Instead, the fund’s share price already includes the commissions.  The payment for the commission will then be taken from the money that is raised from the initial offering.  Furthermore, as the prices would rise, the returns of the investment would also increase equally.

Yet, its volatility is the downside of this kind of bond fund.  Indeed, you will be able to gain a lot during good turns, but you would also experience grave losses at times of down-turns.  The closed end municipal bond fund pricing would fall very far below in a short span of time.

Yet, investing during down-turns will get you high returns since the interest rates are very low, not to mention lots of discount opportunities.  It is a fact that many brokers grab lots of discounts when low times come.  However, there may be sudden increase of interest rates; hence, investors should always be on the lookout.

Aching to know more? Check out other financial planning articles.

Related Posts:

  • No Related Posts

Tags: ,

Comments are closed.