Definition of Municipal Bonds



Municipal bonds are debt instruments issued by countries, states, or local municipalities to raise capital for funding projects like highways, schools, etc. This is very attractive for investors that are already in higher tax brackets because the interest on municipal bonds is exempt from tax.

 


Municipal bonds are like a loan to a government or country that is mainly used for larger public projects like constructions and welfare projects. These are considered risk-free investments as the government backs its payments. The interest payments on general obligation municipality bonds are not secured on revenues from the projects, whereas, revenue bonds are mostly secured.


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