Some investments, such as the Ivy Municipal Bond Fund, (click here for a current
prospectus) provide income that is totally or partially excluded
from federal income taxation.* This allows you, the investor, to gain more from
your earnings. Through such tax-exempt vehicles, you avoid federal income tax on
the interest income you've earned. In turn, you can reinvest or keep dollars that
would otherwise be paid to the IRS.
Municipal Bond Funds Offer Tax-Exempt Earnings
Municipal bonds are key vehicles in today's tax-exempt market. They’re created to
finance public projects (such as the construction of highways, bridges and schools).
Because income from tax-free municipal bond funds is generally federal income tax-exempt*
rather than merely tax-deferred to a future date, your bottom line earnings may
be considerably greater than they would be with a taxable investment.
Are municipal bonds out of reach for ordinary investors?
Traditional municipal bonds are usually purchased in minimum denominations of at
least $5,000. In order to be properly diversified, many experts believe the investor
should have a portfolio of about 10 issues – a financial commitment of at least
$50,000. This may place traditional municipal bonds out of reach for those investors
desiring a diversified portfolio of municipal bonds. However, municipal bond funds
can reduce your initial investment to as little as $500 (minimum investment could
be higher or lower, depending on the municipal bond fund selected) and can potentially
offer more advantages than municipal bonds.
What are the key benefits of municipal bond funds?
Beyond the tax advantages inherent in mutual funds that invest in tax-exempt municipal
bonds, other key benefits that may make them an attractive investment versus traditional
municipal bonds include:
- Professional Management
Professional management can often help to moderate risks associated with fixed income
- Diversification Among Municipal Bonds
Diversification within the funds may also help moderate risks.
- Monthly Dividends
Unlike traditional municipal bonds, municipal bond funds usually pay monthly dividends
that investors can accept as a monthly check or, in the case of open-ended funds,
conveniently reinvest at net asset value.
- Lower Initial Investment
With municipal bond funds, you’re indirectly purchasing shares in a large pool of
municipal bonds, but the initial investment outlay can be as little as $500 (minimum
investment could be higher or lower, depending on the municipal bond fund selected).
- High Marketability
Municipal bond funds are highly marketable, meaning shares can be redeemed at any
How do I invest in municipal bond funds?
Tax-exempt municipal bond funds may not be appropriate for everyone. Remember: One
of the most important steps in forming your investment strategy is defining your
personal investment objectives. With clear objectives in mind whether tax free or
not, you may find it easier to choose the right investments for you. The tax information
in this section of the website is for informational purposes only. It is not intended,
and should not be construed, as a recommendation, or legal, tax, or investment advice.
You should consult your tax advisor to answer questions about your specific situation
or needs. NOTE: We encourage all investors to work with a financial advisor to develop
an individual, comprehensive financial plan.
* May be subject to state or local taxes or the federal alternative minimum tax.
** Redemption is at Net Asset Value (NAV) at the close of business on the redemption
date. Sales charges may apply.
Please remember that a mutual fund is not guaranteed and the principal amount invested
may fluctuate, so that an investor’s shares, when redeemed, may be worth more or
less than their original cost. Generally, as interest rates rise, bond prices fall. Mutual funds carry fees, expenses, and may involve
sales charges not applicable to individual issuers.