Types of Municipal Bonds
There are numerous types of municipal bonds, and all of these can be categorized into two main types, which are revenue and general obligation bonds. General obligation bonds are those which make payments to investors through taxes levied. Revenue bonds are those which make payments to investors through project revenues, and they may be backed by certain tax revenues. These two main types cover many other bond types, such as insured municipal bonds which offer principal and interest insurance on bond payments. Because there are so many types of municipal bonds it is important to do your homework before you invest in these securities.
Some municipal bonds are taxable, and there are also tax free municipal bonds. Both of these types affect the taxes you may owe on any income from the bonds. Other types of municipal bonds include conduit, original issue discount, and housing bonds to name just a few. Each bond type will offer specific advantages and drawbacks, and these need to be considered before making any investment decisions. Zero coupon municipal bonds are a popular choice if you are an investor who has a high income level. Instead of paying interest at regular intervals they are sold at a discount, sometimes steeply discounted, and then the full bond face value is paid on the maturity date.
With all of the many different types of municipal bonds available care should be used when making these investment choices. Some of these bond types will be ideal for some investors, but a very poor choice for others. Consider your investment goals, acceptable risk levels, and the strategies used before you choose which types of bonds will work best in your specific situation. When you buy municipal bonds there are many benefits that can be had, if you take the time and effort to find the best bond investments for your portfolio.