Waddell & Reed

Municipal Bond Funds

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 investing.

  • 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 time.**

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.

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