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Closed End Muni Bond Fund
Municipal Bond funds that are managed and trade in the secondary market are known as Closed End Bond Funds. This type of fund is actively managed and traded in the over the counter market or on an exchange. It's primary investment focus is in municipal bonds - tax free or taxable.
Trading
The advantage to buying a fund that is not "open" like a mutual fund is the ability to trade them during the day. Buying municipals on an individual basis normally does not leave a lot of room for trading. A bond by itself does not move in price that aggressively - at least daily or weekly. With much more money and trading shares available, a closed end fund manager can be very active and the shares can be active price wise as well.
Dividends
Most bond funds pay regular dividends and municipal ones are no different. Unlike growth stocks or most equities - dividends are not an absolute, at least in regularity. Municipal bonds pay interest, so the closed end company will have regular payouts.
The main advantage with these types of funds is an investor can participate in the muni market much more effectively because the manager is partially investing you in hundreds or even thousands of bonds. Most investors cannot invest in large quantities of different bonds on their own. The investment advisor will also manage the interest rate risk and ladder maturities.
Tax Free
Interest received on municipal securites is exempt from federal taxation (ordinary income tax free), but is subject to state and local tax.
Closed Muni Fund - Taxation
Muni Bond Blog - Read more and ask questions of the experts on trading, investing and taxation strategies.
Copyright  2006 American Investment Training, Inc.
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