The persons whose primary investing objective is to preserve capital while generating a tax-free income stream, then municipal bonds are worth considering.
Municipal bonds (munis) are debt obligations issued by government entities. When you buy a municipal bond, you are loaning money to the issuer in exchange for a set number of interest payments over a predetermined period. At the end of that period, the bond reaches its maturity date, and the full amount of your original investment is returned to you.
Types of Municipal Bonds :
Municipal bonds come in the following two varieties:
1. General obligation bonds (GO)
2. Revenue bonds
General obligation bonds, issued to raise immediate capital to cover expenses, are supported by the taxing power of the issuer.
Revenue bonds, which are issued to fund infrastructure projects, are supported by the income generated by those projects.
Both types of bonds are tax exempt and particularly attractive to risk-averse investors due to the high likelihood that the issuers will repay their debts.