Mutual Fund Basics
Unlike corporate bonds, the income that munis (an abbreviated term often used to describe these securities) generate is generally exempt from federal, and sometimes, state and local income taxes.
Investors can either buy munis directly or purchase shares of mutual funds that invest part or all of their assets in them. Credit quality varies widely across the universe of municipal bond issuers. In today’s market, most municipal bonds are rated below triple-A, the highest credit rating generally reserved for issuers with exceptional creditworthiness. Bond ratings, which typically range from AAA/Aaa (highest) to D (lowest), are assigned by credit rating agencies, such as Standard & Poor’s, Moody’s and/or Fitch, as an indication of an issuer’s creditworthiness. Lower rated bonds tend to offer higher yields because of the risks involved. Diversification can be a useful strategy to provide investors with ample potential yield, while mitigating the risks associated with holding a single security.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.