The higher the tax bracket of the bond investor, the higher the tax free yield. Investing in these bonds is normally done based on the state the person lives in. People who buy municipal securities will normally be free from federal, state and local taxation.

Municipal brokers can help customers with investing in them. They are normally offered broker to broker, so many firms will have a list of other firms and their inventory. Investing in these normally comes down to these important factors:

• State issue of the bonds
• Tax bracket of the investor
• Maturity
• Call dates, if any
• Rating
• Coupon and yield

Coupon or the nominal yield on municipals can be low, but the after tax yield is normally much better. Again, this is based on the income bracket of the investor.

In State Municipal Issues

Investors should consider buying bonds issued in their own state. This is because most states offer a "triple tax free" incentive to individuals. Municipal bonds that are bought by in state investors are exempt from federal, state and local tax. If you buy securities outside of your state, you are subject to state and local taxation. This applies to both General Obligation Bonds and Revenue Bonds.

When you are looking to begin investing in these debts, you should consider this factor.

Callable Muni Bonds

Most Muni bonds are callable. This is because states, cities and other authorities want the fiscal flexibility to call back bonds early. The primary reason for a bond being called is that interest rates have gone down enough where the current coupon rate or Nominal Yield is considered too high.

When investing in Municipal bonds, buyers should ladder their portfolio where the call dates are spread out or staggered. This allows for greater management of interest rate risk within their Municipal portfolio.

Callable issued will normally have a higher coupon rate than non call bonds.

Yield and Interest Rate

When investing in these securities, bond yield and interest rate payments need to be looked at. The tax bracket of the investor will create a greater tax free yield with municipal bond investments. A Muni with a 4% interest rate may have a tax free yield of 6% or more, if the buyer is in a high tax bracket. To calculate the tax yield, you need to take the states nominal yield or yield to maturity (if purchased above or below par) and divide that by 100 minus your tax bracket.

Yields on Municipal debt are largely based on the individual and their tax rate.

Bond Rating

All Municipal issues will have a rating attached to the bond. AAA is the highest credit rating in the system. However, bonds that are AA, A or Baa are considered very safe and investment grade.

Investing in Muni bonds offers income and tax advantages.

Closed End Muni Fund - Taxation

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