Wondering Where To Buy Municipal Bonds?
With their tax-exempt status, you will also be interested in asking the question of where to buy municipal bonds. Keep in mind that these are not black market items, so to speak, which means that legality is not an issue. The issuer is a fully-recognized government entity instead of being a fly-by-night operation, which is the case for many penny stock companies.
But you should take note that with the recession in full swing and many states, counties and municipalities adversely affected by the economic downturn, it is prudent to research if the issuer does have the capacity to pay off its present and future obligations. You should check the financial statements, evaluate the financial plans and determine overall direction of the government entity in the same way that you will do your research when investing in a private company. After all, your money is involved regardless if said money will go to physical infrastructure that will benefit you and your family.
So, the question remains: Where to buy municipal bonds? You have two choices – the primary and the secondary market, either of which are legitimate venues for the purchase of these mostly tax-exempt debt security instruments.
We must emphasize the “mostly” part of the tax-exempt status as states, counties and municipalities can also levy taxes on the bonds although at the federal level, these instruments are tax-exempt. We suggest looking at the terms and conditions on the face of the debt security instrument to determine tax status, maturity date, repayment scheme, and interest rate, among other provisions.
Anyway, let’s start with the primary market. In this market, the investor directly purchases the bonds from the issuing government entity, which can be either states, cities or counties. The issuer allows itself to be in debt to the investors so as to finance capital expenditures that it cannot or will not fund from its present coffers.
Depending on the municipal bonds issued, you can purchase either general obligations or revenue bonds. While general obligation bonds are, well, the general obligations of the issuer, the revenue bonds will be funded from the income earned on the project being funded by the issuance. For example, a revenue bond may be issued to finance the construction of a toll bridge, of which the future income will be used to pay the interests due and repay the bond’s face value.
And then there’s the secondary market. Basically, you are purchasing the municipal bonds from other bond holders except the issuer of the bonds itself. These bond holders may be individuals or organizations that have purchased the municipal bonds in the primary market, thus, your purchase being considered as coming from the secondary market. Don’t worry as the government entity issuing the debt security instruments will honor your purchase regardless of when it was purchased and from whom it was bought just as long as the basic provisions in the bond issue were not violated.
Now that your question of where to buy municipal bonds has been answered, we suggest gathering the money to purchase them.