Bonds are financial instruments that represent a loan made by an investor to a borrower, typically a corporation or government entity. They are a form of fixed-income securities and come in various types, each with its own unique features and benefits.
Tax-free bonds are issued by government-backed entities and certain institutions to fund specific projects. These bonds offer interest income that is exempt from federal, state, or local taxes, making them an attractive option for investors seeking tax-efficient returns.
1. Tax-exempt interest income.
2. Relatively low risk due to government backing.
3. Stable and predictable returns.
1. Lower interest rates compared to taxable bonds.
2. Limited availability and often issued in limited quantities.
Bonds play a crucial role in diversifying investment portfolios and meeting various financial objectives. Understanding the nuances of different bond types can help investors make informed decisions aligned with their risk tolerance, financial goals, and tax considerations.
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