Municipal bonds, often referred to as “munis,” are debt securities issued by state or local governments, or their agencies, to finance public projects such as the construction of schools, highways, bridges, and other infrastructure. When investors purchase municipal bonds, they are essentially lending money to the issuing authority in exchange for periodic interest payments and the return of principal at maturity.
One of the key features of municipal bonds is that the interest earned is typically exempt from federal income tax and, in some cases, state and local taxes, making them an attractive option for investors in higher tax brackets. Municipal bonds can be classified into two main types: general obligation bonds, which are backed by the credit and taxing power of the issuing municipality, and revenue bonds, which are supported by the revenues generated from specific projects or sources.
Municipal bonds are generally considered to be lower-risk investments compared to corporate bonds, but they can still carry risks such as credit risk, interest rate risk, and market fluctuations. Investors interested in municipal bonds often consider their tax advantages, investment goals, and the financial health of the issuing entity.
Assess your risk tolerance before deciding between municipal bonds and PPF. Municipal bonds offer higher interest rates but depend on local municipalities' financial stability. The Public Provident Fund (PPF) provides…