| Municipal bond funds are those which are made of | | | | would not be a simple choice for an investor. that |
| bonds made out by governments and related | | | | is because as always, people would opt to Choose |
| systems at both the local and state level. | | | | the funds that has a higher yield potential. |
| Investors favor these type of bonds because of | | | | However, you should take into consideration the |
| the Pleasant tax handling they can get. | | | | pre-tax yield that the bond offers as well|But |
| What is Good about this municipal bond fund is | | | | then, you should look at the pre-tax yield that is |
| that it is tax free at the national level. That is | | | | provided. The tax-equivalent yield is a calculation |
| because the fund itself owns the bonds that are | | | | which allows you compare taxable bonds and |
| issued. Because of its tax situation, there are a lot | | | | tax-free municipal bonds on more level ground. |
| of hypotheses regarding this bond. And that is the | | | | This is done by computing the pre-tax yield so |
| main reason why they are placed lower yied | | | | that you will know the payables and that it shold |
| bonds. Amid that, they can still attract investors. | | | | equal to the tax-free municipal bond yield. |
| Determining if municipal bond funds are the good | | | | On the other hand, to get the tax-equivalent yield, |
| investment can often be carried out by | | | | you must identify the tax bracket. And the |
| performing a simple calculation of the | | | | formula for that is the interest rate return |
| tax-equivalent yield|There are ways to figure in | | | | percentage divided by one and it should be |
| order to know if the municipal bonds are Good | | | | minused by the tax bracket percentile. {As an |
| for investments. One of these is to figure the | | | | example, let s say you are in the 35th tax |
| tax-equivaent yield. | | | | bracket percentile and the bond fund you re |
| {Understanding the tax-equivalent yield will make it | | | | considering has a return of 4%. In this case, your |
| easier to determine if a tax-free municipal bond or | | | | for instance you are on the 35th tax bracket |
| a taxable bond proposed from another root is a | | | | percentile. The bond fund is in 4%. So the |
| well investment for you.|Examining the | | | | process would be: .04/1 - .35 = 6.15%. |
| tax-equivalent yield will aid you identify if the | | | | What this truly tells you is that a taxable bond |
| municipal bond that are offereb by other sources | | | | would need to have a yield of 6.15% in order to |
| are Pleasant. | | | | be the true equivalent of a tax-free municipal |
| Many investors make the mistake of looking only | | | | bond with a 4% yield. In other words, most |
| at the interest return rate on bond funds. Think | | | | investors will find that municipal bond funds |
| that municipal bonds have lower yield, and that | | | | actually have significant enough tax implications to |
| the maturity and quality of the bond is equal to | | | | make them a preferred choice over taxable |
| the bonds that are made out by others. This | | | | bonds available from other sources. |