How to Buy Municipal Bonds or the Munis?

Municipal bonds or the munis are bonds that issued by the local government. People buy munis because the earnings are tax free, subject to purchases are made in their own state.

How to Buy Municipal Bonds?

There are 2 ways you can buy the munis. The first way is to do it is when the munis are newly issued by states or cities. The second way is to buy them from the secondary market. It is always better to buy municipal bonds from your own state to entitle for the tax-free benefits. Tax free benefits make the total return of your munis relatively higher.

There are basically 2 types of munis: General obligation (GO) bonds and revenue bonds. General obligation bonds are issued to fund the expenses and backed by tax raising to pay back interest and principle to the investors. Revenue bonds, on the other hand, are backed by municipal projects like toll bridge, mass transit system, airport, local stadium etc.

After deciding which types of municipal bonds to go for, now you could search for the authorized dealer or banker. Dealers and bankers who sell the munis must register with the Municipal Securities Rule-Making Board. Usually, there will be 0.5 to 3% of transaction fees for buying the munis through dealers. You would be required to open an account with the dealer you select before any transaction can be made.

The minimum amount you need to have to buy the munis is $5,000. If you plan to buy more, it would be in increments of $5,000. You would need to decide on the term of maturity. If you do not plan to hold long, then you should choose a shorter maturity term. Usually, the longer term you choose, the higher yield you should get.

You should also take note of the call dates of the bonds. A call date is a date where the issuer pays back earlier than the maturity date. The yield, which is called yield to call (YTC), would usually be lower if a bond is paid back at the call date.

After everything has been read and understood, you can start making your transaction via your dealer or banker.

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