Many investors are discovering an innovative way to invest in tax-free municipal bonds. Defined-Maturity Funds (DMFs) focusing on muni bonds are funds that mature at predetermined dates and seek to provide federally tax-exempt monthly income.
The key benefits of DMFs:
- Mature like bonds while offering monthly interest payments.
- Diversification and low cost of an investment fund.
- Ease of trading and daily liquidity. They can be sold at any time.
- Easily laddered with yearly options.
A laddered bond portfolio takes individual bonds maturing in different years to build a portfolio that consistently provides matured proceeds, a helpful feature for many investors. While the principal returned at a DMF’s maturity varies from the original investment because of inflows and outflows into the fund, the difference will generally be lower than potential changes in a typical investment fund without a defined-maturity date.