By Anjali Singh(140005)

Introduction
❑ Municipal bonds are issued by state and local governments and their agencies and authorities to
finance public projects.

❑ Investors who buy municipal bonds are essentially lending money to the government entity that
issued the bond.

❑ Municipal bonds are exempt from income tax and taxes.

❑ Municipal bonds carry the risk of default if the issuer is unable to make the required interest or
principal payments.

❑ Changes in interest rates and economic conditions can affect the market value of municipal bonds.

❑ Municipal bonds may not always provide the same level of return as other investments.
 Types of Municipal Bonds
General obligation bonds: Backed by the full faith and credit of the issuing government entity.

Revenue bonds: Issued to finance specific revenue-generating projects such as toll roads, airports, and
utilities.

Industrial development bonds: Issued to finance the construction of manufacturing plants and other
facilities.

Housing bonds: Issued to finance the construction and rehabilitation of affordable housing.

Tax-backed bonds: Backed by specific taxes or revenue streams, such as sales tax or hotel occupancy tax.

Special assessment bonds: Issued to finance infrastructure improvements in a specific area.

Municipal bond funds: Mutual funds or exchange-traded funds that invest in a portfolio of municipal
bonds.
 Characteristics of Municipal Bonds
Interest payments: Municipal bonds pay regular interest payments to investors at a fixed rate for a set period of
time.

Tax advantages: Municipal bonds are generally exempt from federal income tax and sometimes from state and
local taxes.

Credit rating: Municipal bonds are assigned a credit rating based on the issuer's creditworthiness, which can
affect the interest rate paid to investors.

Maturity: Municipal bonds have a set maturity date, at which point the investor receives the full amount of their
initial investment back.

Risk: Municipal bonds carry the risk of default if the issuer is unable to make the required interest or principal
payments.

Diversification: Municipal bonds can be a good addition to a diversified investment portfolio.

 Risks Involved

Call risk. Call risk refers to the potential for an issuer to repay a bond before its maturity date. Many municipal
bonds are “callable,” so investors who want to hold a municipal bond to maturity should research the bond’s call
provisions before making a purchase.

Credit risk. This is the risk that the bond issuer may experience financial problems that make it difficult or
impossible to pay interest and principal in full (the failure to pay interest or principal is referred to as “default”).
Liquidity risk : This refers to the risk that investors won’t find an active market for the municipal bond,
potentially preventing them from buying or selling when they want and obtaining a certain price for the bond.
Many investors buy municipal bonds to hold them rather than to trade them, so the market for a particular bond
may not be especially liquid and quoted prices for the same bond may differ.

Inflation risk. Inflation is a general upward movement in prices. Inflation reduces purchasing power, which is a
risk for investors receiving a fixed rate of interest. It also can lead to higher interest rates and, in turn, lower
market value for existing bonds.
THANK YOU