Municipal Debt Funds
About Municipal Debt
Municipal bonds are debt issued by a state, city, or other municipality for
general governmental needs or to finance special projects. Municipal bonds pay interest that is free from regular federal income tax, and state-specific bonds can provide residents of those states with income free from state and, in some cases, local income taxes as well.* Municipal bonds can be an advantageous alternative to taxable investments, particularly for investors in higher tax brackets. To make a fair comparison between a tax-free investment like a municipal bond and a taxable investment, one should adjust the tax-free investment's yield to account for money saved in regular federal, and sometimes state, income tax.
* Interest on out-of-state bonds and dividends paid by national funds may be subject
to state and local taxes. Income may also be subject to the Alternative Minimum Tax.
About Nuveen Municipal Debt Closed-End Funds
Nuveen Municipal Closed-End Funds can potentially help you close your income gap by:
- Meeting current expenses with monthly tax-free income;
- Potentially realizing attractive, long-term, after-tax total returns;
- Diversifying your income portfolio;
- Reducing the amount of your investment income subject to taxes.
The Tax-Free Advantage
| 25% |
6.00% |
6.67% |
7.33% |
8.00% |
| 28% |
6.25% |
6.94% |
7.64% |
8.33% |
| 33% |
6.72% |
7.46% |
8.21% |
8.96% |
| 35% |
6.92% |
7.69% |
8.46% |
9.23% |
You can see you would need to earn much more from a taxable investment to match a municipal bond's after-tax yield. For instance, if your fund is yielding 5.00% tax-free and your tax rate is 35%, you would need a taxable investment to yield 7.69% to match the same after-tax cash flow. (This chart is for illustrative purposes only and is not intended to reflect past or predict future performance for any particular investment.)
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Who Might Be Interested in Municipal Bond Closed-End Funds?
The features and investment objectives of these funds might be especially appealing to investors seeking:
- Potential for attractive, monthly tax-free income
- Diversification of a portfolio otherwise comprised of taxable fixed-income and equity securities
- Reduction of the amount of investment income subject to taxes.
What are potential risks of municipal bonds?
- Municipal bond fund income may be subject to state and local income taxes and the alternative minimum tax. Capital gains, if any, will be subject to capital gains tax.
- Municipal bonds are subject to interest rate risk, or the risk that the bonds will decline in value because of changes in market interest rates.
- Municipal bonds are also subject to call risk, and credit risk.
