What is a Tax-Free Bond Fund?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 25 August 2019
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Tax-free bond funds are mutual funds that tend to invest in municipal bonds. The mutual fund is configured to be tax free. As a result, the investor is able to realize a profit, but is less likely to incur a large amount of tax burden.

Also known as a tax-free mutual fund, the tax-free bond fund will seek to include the most profitable municipal bonds currently available, but focus on only those opportunities that will result in a low rate of tax passed on to the investors. Tax-free mutual funds offer the benefit of not only creating less of a tax burden, but also allow investors to participate in financing of projects that ultimately benefit everyone who resides in the municipality that issued the bond.

The bonds that are often included in a tax-free bond fund can be loaded bonds or no-load bonds. A loaded bond is essentially a bond issue that is structured to allow a commission to be collected on the sale of the bonds. No-load bonds do not include a commission. Both types of bonds are capable of generating a respectable return on the investment, and thus can be attractive for inclusion in the mutual fund.


A tax-free bond fund may be associated with a private mutual fund, or be sponsored on a statewide level. There are many examples of municipal bonds that are ideal for inclusion in a tax-free bond fund. Financial analysts and advisors can help investors to find the right tax-free bond fund program that will result in equitable returns, combining the ability to create a tax advantage with the acquisition of bond issues that appeal to the investor from a civic point of view.

In addition, investors can research many different tax-free bond fund options via the Internet. Many of the individual funds operate web sites that allow investors to log in and check on the status of all the municipal bonds included in the fund. It is also possible to find commentaries regarding the various tax-free bond funds online, which may prove helpful in selecting a particular fund.


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Post 2

For some people, savings bonds are what you give your newborn grandchild or your niece who just graduated from high school. But according to the Texas Society of CPAs, savings bonds could have a place in your own investment portfolio, particularly if you’re looking for low-risk investments. If you're searching for an investment that offers steady reward with fairly minimal threat, think about bonds. Conservative investors have preferred bonds during all the twists and turns of the stock market.

For inexperienced investors planning to build a retirement nest egg, the Wall Street Journal advises up to a 15 percent portfolio diversification into bonds. Know what bonds can do for you? The interest earned on savings bonds is always exempt from

state and local income taxes. You can defer federal income taxes on the interest your bonds earn until the savings bonds reach final maturity or you redeem them. However, you may elect to treat the annual increase in value of these bonds as income in each year.
Post 1

Your earnings from Series EE and Series I savings bonds may be excluded from federal income tax if you pay qualified higher education expenses in the same year you redeem the savings bonds. Your household income must meet certain guidelines to qualify for this exclusion.

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